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in an effort to share with those interested in watching the US housing market and housing valuations implode....in real time.....consider this site:
http://www.countrywide.com/purchase/f_reo.asp
You'll be able to watch Coountrywde Mortgage Comany's inventory of foreclosed and unsold houses rise....and they and other mortgage companies will lower prices until the market is flooded wth this "stuff". Either that....or they pay taxes...maintenance....etc....on the houses that they eat as mortgagees walk away from loans. Fifteen percent of Calif. homes for sale are already foreclosures.
Combine this with the drying up of liqiuidty for new lending and this will work it's way UP to "prime" mortgagees. Mortgagees who put down 20 percent but who experiencee the loss of all eqiuty in their homes....and then some....will walk away too...if valuation drops low enough for long enough....now it's sprfeading from subprime to Alt-A loans....
Below:
ALT-A lender AHM waited until the start of a 3 day weekend (with the markets closed) to release it's "bad news".
inDYBank (NDE) fought off the decline in it's stock pirce by staging highly publcized insider "buys" of it's shares....and by shouting that they were Alt-A lenders not subprime. With the bad news from Alt-A lenders AHM and from M&T Bank what excuse will indybank say next?
Countrywide committed to buying back $1 billion of it's own shares....even as chairman Angelo Mozilo sold his own shares as quickly as he could....ALL are doing everything they can to take attention away from the fact that they are trapped by the declining credit quality of those who they lent money to and by the declining collateral of the mortgagees in their homes and by a smaller pool of qualified new borrrowers as loan approoval requirements further tighten as the news of the fundamentals grows worse.....
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http://calculatedrisk.blogspot.com/2...ally-well.html
Thursday, April 05, 2007
Alt-A: Another Exceptionally Well-Disguised Blessing
LoanPerformance’s December 2006 issue of its newsletter, “The Market Pulse,” is now available online. (You must subscribe (free) in order to download a copy.) It features an article by UBS’s David Liu and Shumin Li which you might not want to read if you are both 1) an owner of certain Alt-A mortgage-backed bond tranches and 2) eating.
I recommend the entire newsletter, which is full of charts and maps and things for those of you who are graphically minded. The Liu and Li article, however, is a must-read for bond geeks. The conclusion:
If [prepayment] speeds slow 20-25% as we predicted . . . [Alt-A] cumulative losses could rise an additional 25-30%, which will be ~200 bps under the weak HPA [less than 5%] scenario.
By comparison, BBB- bonds backed by Alt-A hybrids are generally designed to have credit enhancement of ~200 bps. . . On average, credit support of BBB- bonds will be erased over the life of the deal, although the losses will not hit the BBB- bonds. The bonds will most likely be downgraded due to the serious erosion of credit support. . . .
If the housing market remains flat or turns negative for a prolonged period of time (e.g., [less than] 1% annual HPA for the next 3-5 years), then we expect cumulative losses on these deals to rise another 20% (based on the limited data we have observed in the subprime ARM sector), which will wipe out the credit support of BBB bonds on these deals even without considering the distribution of losses. . . .
In summary--we project baseline prepayment speeds of low 20 CPR (for 5/1s), and therefore cumulative default rates of 12-13%, applying a loss severity of 15% on all defaulted loans - - would result in a cumulative loss of ~200 bps, which could potentially wipe out most of the credit support [of] BBB- rated bonds backed by Alt-A hybrids. And yet - we have not seen any spread movements that suggest investors are taking this into consideration. [emphasis in original]
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http://investing.reuters.co.uk/news/...8011-OISBN.XML
IndyMac CEO: Subprime Contagion Fears Overblown
Thu Mar 29, 2007 10:00 PM BST18
NEW YORK (Reuters) - IndyMac Bancorp Inc. (NDE.N: Quote, Profile , Research) said on Thursday its lending practices are far safer than those of many "subprime" lenders, calling investor fears that it will suffer heavily from rising defaults "overblown."
Shares in the California mortgage specialist rose more than 6 percent after it issued the news release.
IndyMac, which is also one of the largest U.S. savings and loans, specializes in "Alt-A" mortgages, which have risk levels ranking between "prime" and "subprime" mortgages, or which do not qualify for the lowest rates.
Its shares have lost more than one-fourth of their value this year amid fears that financial difficulties afflicting many subprime lenders, such as New Century Financial Corp. (NEWC.PK: Quote, Profile , Research) and many others in California, might spread. Subprime lenders make home loans to people with poor credit.
"Because on an objective analysis of the facts, talk of the 'subprime contagion' spreading to the Alt-A sector of the mortgage market is, in our view, overblown," Michael Perry, chief executive of Pasadena-based IndyMac, said in a statement.
IndyMac's credit quality "shines in relation to the industry, validating our lending standards and practices," he added.
Perry last week bought more than $1 million of IndyMac stock, according to regulatory filings.
IndyMac shares rose $1.98, or 6.4 percent, to $33.12 in afternoon trading on the New York Stock Exchange. They began the year at $45.16.
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http://www.labusinessjournal.com/ind...2=111643&cID=2
Los Angeles Business Journal PRINT | CLOSE WINDOW
Countrywide and IndyMac Vulnerable to Alt-A Fallout
By JABULANI LEFFALL - 3/26/2007
Los Angeles Business Journal Staff
If the subprime meltdown spreads into higher loan classes, Los Angeles-area lending giants Countrywide Financial Corp. and IndyMac Bancorp Inc. stand to get hit by what one lending expert calls the “law of reverse gravity.”
“With bad loan exposure, it’s bottom-up instead of top-down,” said Keith Corbett, executive vice president for Center for Responsible Lending.
“You got subprime on bottom and prime on top and there’s this middle that will be hit, an area where bad loans in the subprime space may lead to not only defaults but tighter underwriting standards for Alt-A loans and perhaps upward.”
So-called Alt-A loans are extended to borrowers whose credit scores fall short of prime but are above subprime. Los Angeles County is a center of the Alt-A universe, partly because of its large and diverse population of entrepreneurs, performing artists, independent contractors and others with decent but not-so-steady income. High property prices also push some borrowers who otherwise would be prime borrowers into Alt-A territory.
Both Countrywide and IndyMac are among the very biggest Alt-A lenders in the country. A small but significant portion of the outstanding loan portfolio of Calabasas-based Countrywide, the largest U.S. lender, is Alt-A. IndyMac of Pasadena, which originated $69 billion in Alt-A loans last year, has more than 70 percent of its loan portfolio designated as Alt-A.
“Over the last two years, the distinction between Alt-A and subprime has become even more blurry,” said David Liu, mortgage strategy analyst for investment bank UBS AG. “Therefore the same types of problems, such as growing delinquencies, that plagued subprime loans are going to filter into the Alt-A market to a certain extent, and if you’re a company in this area, you’ll be affected adversely.”
Don’t call us subprime!
Countrywide and IndyMac recently have seen their stocks slide 21 and 41 percent respectively off their 52-week highs and have responded vehemently to news reports linking them to the subprime market.
Both companies point out that subprime loans are a small part of their respective loan portfolios.
IndyMac has been catching so much flak for being in the “subprime business” that it released a statement March 15 clarifying its “strong position as an Alt-A lender.”
“Based on the definition of subprime established by the Office of Thrift Supervision for our regulatory filings,” the statement read, “only 3 percent of IndyMac’s $90 billion in mortgage loan production in 2006 was subprime.”
Analysts thus far have been less than impressed with these explanations.
Robert Lacoursiere, an analyst with Bank of America Securities, recently issued a “sell” rating on both Countrywide and IndyMac. He anticipates increased write-downs and loan-loss provisions.
“We expect a difficult environment going forward for Countrywide and IndyMac,” he wrote in a research note, adding that both companies would face continued increases in credit risk in 2007.
Countrywide declined specific comment but said it was watching the market to see the degree to which its Alt-A operations are affected.
Meanwhile, IndyMac Chairman and Chief Executive Michael Perry said via e-mail that it was no fun to have the current level of turmoil in the mortgage business and see IndyMac’s earnings and stock price decline, causing stress for employees and shareholders. That said, he added that he thought the industry needed a shakeup in the form of the current “firestorm” to restore rationality and discipline to the industry.
“Clearly, the mortgage market and, in particular, the secondary market for mortgages are in a state of irrational panic right now, making it virtually impossible to predict short-term loan production and sales volumes or earnings with any reasonable precision until things settle down,” he said.
Red ink in the gray area?
Alt-A loans skyrocketed from about $85 billion in 2003 to about $400 billion last year.
Default rates for Alt-A mortgages doubled in the past 14 months, partly because the so-called teaser rates – temporarily low interest rates for the first few months or years of a mortgage – have been expiring at the same time home prices have flatlined. In the past, borrowers simply refinanced or sold when their teaser rates expired, relying on sharply appreciating home prices to bail them out.
Liu of UBS AG said that cumulative losses in the Alt-A sector in the past year are 10 times that of the prime market.
Zach Gast, of the Center for Financial Research, said that if Congress pushes for tougher underwriting standards, a large percentage of borrowers whose loans have already been approved would not qualify after any new standards are put in place.
“And most of the applicants will fall into the Alt-A loan category, which is largest in California,” he said.
Before the recent upheaval, a potential borrower could’ve had a Fair Isaac Co. (FICO) credit score as low as 640 and get an Alt-A loan at a lender’s discretion. Today that number is more like 680. IndyMac’s new average requirement for Alt-A is 701. Subprime requirements are shooting up from 600 to a low of 670.
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http://www.bloomberg.com/apps/news?p...q4o&refer=home
M&T Shares Fall on Lower-Than-Expected Mortgage Bids (Update2)
By Elizabeth Hester
April 2 (Bloomberg) -- Shares of M&T Bank Corp., the New York bank partly owned by Warren Buffett's Berkshire Hathaway Inc., fell the most since 1998 after the firm cut its earnings forecast because of weaker-than-expected demand for mortgages.
The stock tumbled $9.83, or 8.5 percent, to $106 at 3:13 p.m. in New York Stock Exchange composite trading. The Buffalo, New York-based company last week cut its first-quarter profit forecast by $7 million because so-called Alt-A mortgages it tried to sell attracted lower bids than predicted. M&T also said rising defaults mean it must buy back some loans it previously sold.
Shares of mortgage lenders have dropped this year as defaults on subprime loans rose to a four-year high. Companies that offer Alt-A mortgages, a category considered at less risk of default, have said in the past month that investors are mistaking them for subprime lenders and unfairly punishing their shares.
M&T ``is among the first banks to report that recent issues in the subprime arena have, in fact, spread upward to `higher- quality' borrowers,'' wrote Joseph Fenech, managing director at Sandler O'Neill & Partners LP, in a note to investors. ``We would not be surprised to see similar-type pre-announcements from other banks.'' Fenech rates M&T stock a ``hold.''
Shares of IndyMac Bancorp Inc., another Alt-A lender, fell as much as 5.9 percent and rival Impac Mortgage Holdings Inc. fell as much as 5.6 percent. IndyMac's shares have lost almost a third of their value this year and Impac is down 46 percent. M&T Bank has fallen 13 percent in 2007. Today's decline was the biggest since Aug. 31, 1998.
New Century Bankruptcy
Surging defaults in subprime mortgages, those to borrowers with bad credit or high debt, have forced more than 30 lenders to close, cut operations or seek buyers since the start of 2006. New Century Financial Corp. today became the biggest subprime mortgage company to file for bankruptcy in the past year after being overwhelmed by customer defaults.
The loans M&T planned to sell didn't attract the offers the bank expected at auction, the company said on March 30 after the close of regular trading. M&T cut their value, resulting in after-tax costs of 7 cents a share. The loss on the loan buyback will cut profit by another $4 million, or 3 cents a share, the bank said.
``Even excluding the losses on the Alt-A portfolio, MTB still would have missed estimates by a notable margin,'' said A.G. Edwards Inc. analyst David George in a note to clients. He rates the shares ``hold.''
Alt-A mortgages, short for Alternative A, fall shy of the credit criteria of Fannie Mae and Freddie Mac, the two largest sources of mortgage money in the U.S. They often involve loans made with less proof of borrowers' income or assets, purchases of homes by investors or interest-only loans and ``option'' adjustable-rate mortgages, whose payments can fail to cover the interest owed.
M&T said it plans to keep $883 million of Alt-A home loans instead of selling them because management believes the bids don't reflect their true value.
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http://www.marketwatch.com/news/stor...yhoo&dist=yhoo
American Home Mortgage cuts profit forecast
Warning suggests subprime woes are spreading to other home loans
By Alistair Barr, MarketWatch
Last Update: 4:14 PM ET Apr 6, 2007
This update clarifies that stock markets were closed for Good Friday, with the share price given from Thursday.
SAN FRANCISCO (MarketWatch) -- American Home Mortgage Investment Corp. cut its first-quarter and full-year profit forecast by more than 25% Friday after being hit by problems in the secondary market for home loans and mortgage-backed securities.
The company also said that it's stopped offering some types of so-called Alt-A mortgages because of the high cost of delinquencies on those loans.
<b>The warning suggests that problems in the subprime-mortgage business have begun spreading to other parts of the home-loan industry.</b>
AHM ) said that first-quarter earnings will be roughly 40 cents to 60 cents a share, down from its previous view of $1.11 to $1.17 a share. For 2007, it forecast earnings of $3.75 to $4.25 a share, compared with the $5.40 to $5.70 a share it previously predicted. The company also announced that it is cutting its quarterly dividend to 70 cents from its previous level of $1.12 a share.
"During March, conditions in the secondary-mortgage and mortgage-securities markets changed sharply," said Michael Strauss, American Home's chief executive, in a statement. "While the market may recover ... our working assumption must be that current market conditions will persist."
American Home also indicated that it continues to be affected by the high cost of delinquencies, especially on Alt-A mortgages, and that it's been forced to repurchase some of these loans.
The company announced that it's stopped offering certain types of Alt-A loans that have been particularly prone to rising delinquencies and repurchases. Those are loans where the homeowner borrows a relatively high portion of the value of a property and simply states an income, rather than documenting it.
American Home also said that it plans to raise the interest rates charged on mortgages.
Shares of American Home closed at $25.84 on Thursday, down 25% so far this year. Stock markets were closed for Good Friday.
Subprime-mortgage originators like New Century Financial (NEWC
new century financial corp NEWC ) , NovaStar Financial Inc. (NFI novastar finl inc
and Accredited Home Lenders Holding Co.( LEND ) , have been hit hard this year by rising delinquencies and foreclosures. Subprime loans are offered to poorer borrowers with blemished credit records, so many experts expected trouble in this corner of the mortgage market once house prices stopped rising quickly.
<b>But American Home isn't a subprime lender. In early March, the company issued a statement to clear up any "confusion" about the type of loans it offers. Most are adjustable-rate mortgages and so-called Alt-A loans,</b> which often require less documentation. American Home even offers conventional fixed-rate home loans. Subprime mortgage are less than 1% of its total loan portfolio.
Still, American Home said Friday that earnings will be lower because investors in the secondary-mortgage market and the market for mortgage-backed securities (or MBS) offered to buy its loans at "materially lower" prices.
Lower prices for AA-, A-, BBB-rated MBS and riskier bits known as residual-mortgage securities also triggered losses in American Home's investment portfolio, the lender added.
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