Mr Mortgage's Guide to the TRUTH!

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come on over and say 'hello'. And 'THANK YOU' to Ml-IMPLODE for giving me a much larger platform and wider audience - the TRUTH NEEDS TO BE KNOWN. -Best, Mr Mortgage

CDO BACK IN THE SPOTLIGHT- FRONT & CENTER

One of our friends, let's call him 'R' for short, sent some good info on Wachovia below so I thought I would talk about the monolines again.

Monolines, as if it is any surprise, are surviving on fumes. The CDO story is breaking once again (as if defaults ever got better) but this time maybe the final blow.  Very few, other than the monolines themselves, believe they actually have the capital to support future claims levels and news like we are getting today should make that apparent to even them. Just remember, every time you see a press release such as 'housing values drop x% nationally', 'S&P downgrades 300 AAA tranches from 100  Alt-A deals', 'foreclosures jumped last month', even 'existing home sales down more than anticipated', etc, that ultimately, it weakens the the infrastructure of the security leading to more losses.

I still think the monolines going down is a large threat to the financials and credit market in general. It could literally happen at any time or never.

By the way....why such focus on the CDO anyway? The CDO universe is small compared to the whole loan and mortgage-backed security (MBS) universe. And whole loans and MBS are owned by a much wider investor base. MBS make up CDO's for Pete's sake. It seems that all this hoopla over a few banks taking big hits on CDO's is hiding the much greater exposure and losses that must be occuring on the CDO components in order for the CDO itself to sustain a loss. -Best, Mr Mortgage

FROM WACHOVIA THIS MORNING (will get charts up soon but data below speaks for itself)

As a supplement to our CDO Collateral and CDO Tranche Downgrade Reports, Wachovia CDO Research presents our summary of ABS CDO Default Statistics.

Exhibit 1 shows the count and volume of ABS CDO events of default by vintage, along with total ABS CDO and total CDO issuance, for the years 2004–2007. Our volume statistics represent USD CDO issuance, (based on original liabilities and equity), as reported by Intex. We classify CDOs according to collateral pools; ABS CDO issuance in Exhibit 1 displays the volume of CDOs with structured finance collateral and excludes CRE and TruP CDOs.

Using S&P data, we currently track 165 ABS CDOs totaling $185.9 billion that have tripped their event-of-default triggers between October 2007 and April 21, 2008. ABS CDOs in default represent 27% by count and 32% by volume of total ABS CDO issuance since 2004. In addition, these defaults equal 11% by count and 17% by volume of total CDO issuance. For vintage 2007, 59% by count and 63% by volume of ABS CDOs issued have tripped EOD triggers.

Credit Suisse - 12.7% of All Borrowers Will Be Foreclosed Upon

This little ditty below is one of the most aggressive foreclosure projections to date out of a large-named bank. Funny thing is, it goes hand-in-hand with my Subprime/ALT-A video in which I illustrate the overwhelming similarities between the two universes. YouTube Link... MR MORTGAGE - FUTURE ALT-A CRISIS EXPOSED . For the record, I think they are being conservative but '12.7% of all residential borrowers losing their homes' is quite a thought. -Best, Mr Mortgage

From Reuters: Foreclosures to affect 6.5 mln loans by 2012-report

Falling U.S. home prices and a lack of available credit may result in foreclosures on 6.5 million loans by the end of 2012. The foreclosures could put 12.7 percent of all residential borrowers out of their homes .

Credit Suisse expects home prices will fall by 10 percent in 2008 and 5 percent in 2009, before rebounding. The forecast includes the 1.2 million homes currently in foreclosure or already bank Real Estate Owned (REO). Credit Suisse sees 2008 as the peak year for foreclosures, even though they see the price bottom (25% off the peak) in 2009. The normal pattern is for the foreclosure activity to peak in the same year as housing prices bottom.

Of the 1.2 million current foreclosures, Credit Suisse estimates about half are due to subprime borrowers, and about half other borrowers (alt-A, prime). Although Credit Suisse expects a much higher percentage of subprime borrowers in foreclosure, the pool of other borrowers is much larger, and Credit Suisse expects close to 4 million other borrowers to lose their homes to foreclosure through 2012.

http://www.reuters.com/article/bondsNews/idUSN2233380820080422

Mortgage Applications Plunge As Rates Soar

Good Morning. When rates click over 5.75%, applications slow and over 6% on 30-year fixed product, the mortgage market seizes. In the good 'ol days, exotic programs would fill the void because many programs, such the Pay Option ARM, were impervious to rate increases...remember it is all about the monthly payment. Two things to consider here when reading the link below; the 6.04% average rate they quote is not reality because at 'no-points' it is closer to 6.25% on a $417k loan and 7.0% on an new Agency 'Con'-Jumbo; and the number of applications that actually close remains extremely low, hovering around 40% from research I have done at four national banks.

This ties in nicely with the report I posted a few days back that was highly ridiculed by some but now looks extremely accurate and foresighted called 'NEW FANNIE/FREDDIE 'CON' JUMBOS ALREADY A BUST' http://mrmortgage.typepad.com/blog/2008/04/new-fanniefredd.html - Best, Mr Mortgage

*(Reuters) NEW YORK - Mortgage applications plunged last week, largely reflecting a drop in demand for home refinancing loans as interest rates surged, an industry group said on Wednesday. http://www.reuters.com/article/ousiv/idUSNAT00395920080423?sp=true

4/22 MAR EXISTING HOME SALES...The Story Within the Report

4/22 - YOUTUBE VIDEO VERSION - http://www.youtube.com/watch?v=xi76bemJECU

This morning's Existing Home Sales report, while on the surface may have looked to be stabilizing, was as ugly as can be even though the headlines only say a "2% drop". March Existing Home Sales Data - NAR

The story within the story is that prices continue to plummet caused by foreclosure sales, which if sold by a Realtor, get counted in the number. Datquick estimates that 38.4% of all March home sales were from foreclosure stock. Most do not know this. REO/Foreclosure sales have picked up in count due to the massive inventory banks hold. These homes sell for a 20-60% discount. As REO sales grow, prices will come down even further. Right now, banks are only selling a small fraction of their REO mostly through large auction aggregators such as Real Estate Disposition Corp (REDC). 

CNBC's Dennis Kneale loves to talk about what a great thing this is, however, I see it differently. I see it as where one person gets a great deal buying a fire-sake auction home, while everyone in their neighborhood takes a bloodbath due to the price that one person paid. Remember, home values are based upon comparable sales within a small, defined area. I know many of you will say 'the buyer sets the price so the price is what it would have been anyway'. I say that never before have we seen an economic wildcard in banks releasing inventory slowly (for now) and pricing it at such deep discounts in order to get the inventory off the books as quickly as possible.

On the Jumbo front, prices were down roughly 8.5% nationally and 15% in the Western Region. Dataquick says over half the median drop in prices were due to the lack of jumbo loan financing. Jumbos accounted for just 14% from 38% last year. This is significant. As prices drop, more home owners go into a negative equity position causing more loans to default. The snowball is picking up steam and equity is evaporating quicker than ever.

The only way out off all of this remains a national reduction of mortgage balances for everyone. They will figure it out later than sooner I am sure. -Best, Mr Mortgage

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BLOOMBERG - U.S. Economy: Sales of Existing Homes Fell in March (Update1)

By Shobhana Chandra

April 22 (Bloomberg) -- The two-year U.S. housing slump showed no sign of abating in March as sales of previously owned homes fell for the seventh time in eight months.            

Purchases dropped 2 percent, less than forecast, to an annual rate of 4.93 million, from 5.03 million in February, the National Association of Realtors said today in Washington. The median sales price declined 7.7 percent from a year earlier. Bloomberg report - Left out foreclosure sale info

NOT SO FAST...below is the Dataquick CA report for March. You can get other States there as well. Very good info.

Dataquick Information services - April 17, 2008

A total of 24,565 new and resale houses and condos were sold statewide last month. That makes it the slowest March in DataQuick's records, which go back to 1988. Sales were up 19.8 percent from 20,513 in February and down 38.3 percent from 39,811 for March last year.

Of the homes sold in March, 38.4 percent were foreclosure resales.

Dataquick California March 2008 Home Sales

HOME EQUITY LOAN DELINQUENCIES SURGE...S&P, BofA and Fitch Concur

YouTube Video Link - http://www.youtube.com/watch?v=3NOHJPxGGlk - S&P, BofA and Fitch all concur that the 'Home Equity Implosion' is knocking on, or kicking down rather, the front door.

The delinquency and default crisis with Home Equity Lines/Loans will only grow from here. It is the 'negative equity effect' in full force...many people just will not continue to pay for a massively depreciating asset, especially in cases when the first mortgage maybe an exotic where the payments are increasing!

The update from S&P below came out this morning. On its own it doesn't say much unless you track such things. But when combined with what BofA said in its earnings call this morning and with what Fitch said last month about big banks deadly home equity exposure, it provides a clear path to where all of this is headed - home equity lines/loans are right up there with the Pay Option ARMs as being the next big 'implosion'.

Our nations largest banks holds the majority of these loans. Click the links below and it will all become clear.

Consumers...there maybe relief for you coming soon if you have a home equity loan!

Standard & Poors Home Equity Update Released Today

Download FITCH_HOME_EQUITY_WOES.2008.03.14.pdf

BofA Earnings Call Excerpts...

"Credit quality in our consumer real estate business mainly home equity deteriorated sharply. The problems to date have been centered in higher LTV home equity loans. Our largest concentrations are in California and Florida [40% of portfolio]. 82% of the net charge offs related to loans where the borrower was delinquent and had little or no equity in the home. Loans with the greater than 90% CLTV on a refreshed basis currently represent 26% of loans versus 21% in the fourth quarter. We believe net charge offices in home equity will continue to rise given softness in the real estate values and seasoning in the portfolio. Two issues that is playing home equity and could drive losses are a prolonged deterioration in home values and further deterioration in the economy."

NEW FANNIE/FREDDIE 'CON'-JUMBOS ALREADY A BUST

YouTube Video on Fannie/Freddie 'Con'-Jumbos

Just got off the phone with three of my top contacts at three of the nations leading mortgage lenders/banks. These programs are not selling at all. The volumes are very low. Banks are highly disappointed. The difference between a standard Fannie/Freddie (Agency) is roughly 75 to 100bps depending on the lender. Agency 30-yr fixed are roughly 6.25% with no points and Agency Jumbos are roughly 7 to 7.25%. Mortgage rates have gone up about .375% in the past few days.

For refi's, nobody wants out of their 5/1 ARM, ALT-A interest only or Pay Option ARM into a 30-yr fixed at 7.25% where their payments increase substantially. Also, in over 50% of cases appraisal are not coming in at value. For example, the loan application is taken with an estimate of $600k and the loan is an 80% loan-to-value (LTV). When appraisal comes in, the value is actually $500k making the loan a 100% LTV and there are no programs available. This is happening on a vast amount the $417k conforming loans as well.

For the purchase money folk, rates are also too high for current property values. Plus, a down payment required is 10%+. Debt to income ratios have tightened, further reducing buying power. A household wanting to take advantage of a $700k Agency loan at 7.25% must earn about $175k per year at current rates. And that only buys a $770k home, which is low to moderate in most areas in CA. Surely not the first-pick neighborhood of some earning $175k per year. That same person could have purchase a $1.5 million home with little to no down payment nine short months ago..

In a nutshell, the new Fannie/Freddie jumbo programs are already a bust. They offer nothing to most people other than the few with perfect credit, who have a large down payment and make tons of money. That wipes out the vast majority of the buyers in CA. All while inventories of home for sale and foreclosures soar. Slowly over time, home values will gravitate towards the most readily available financing, which is Agency conforming $417k. This is just another example of how far CA Real Estate has yet to fall. -Best, Mr Mortgage

ADDITION TO ABOVE...a) a $720k loan at 7% on a 30-yr fixed is a principal and interest payment of $4,825 PLUS taxes and insurance of another $1,000 for nearly $6k a month. With a 40% debt-to-icnome ratio and reasonable other debt, the household income would have to be in very high $100k's per year to reasonably qualify. b)10% down is the minumum but rates are higher with that LTV and good luck finding a second mortgage to 90% so LPMI is the only option, which adds even more to the rate c) credit score must be over 700 to qualify for the best rates. d) in region deemed 'declining or soft', LTV's may be even lower requiring more equity for a refi or more cash down for a purchase.

ALT-A DISASTER LOOMING - KNOW THE FACTS

The ALT-A universe, nearly twice the size of the subprime universe, is headed for disaster.  Know the facts. - Best, Mr Mortgage

http://www.youtube.com/watch?v=pmeBSWI9sF8

Regarding CMG Mortgage & GMAC/Cerberus - www.ML-Implode.com Collaboration

Below is my response to the chatter than CMG was potentially imploding. ML-Implode broke the story. There is something here potentially, but in this very rare case I don't think an implosion. I think GMAC is still sorting out their tangled web of destruction. -Best, Mr Mortgage

In the right hands, the Home Ownership Accelerator, is a tremendous loan program...a borrower actually can pay down their principal balance in much shorter amount of time than with a traditional 30-yr mortgage and the mortgage balance does not grow every month, as with a toxic Pay Option ARM (neg-am). What an idea!! When I was reviewing this loan program in detail last year, the average age of the borrower was 50, the average fico was 750 and average LTV was <70%. CMG only had 2 defaults since they began selling the program 2 1/2 years ago. This program is not for everyone for sure, but the people who actually make more per month than they spend can benefit from the HOA. I am aware that Cerberus wanted to brand this highly innovative loan program as their own for the GMAC/GM corp and push through their retail channel complete with $10s of millions of traditional consumer advertising to back it. They even wanted to release it as part of their corporate retirement package.

If there is an issue, perhaps it is not a CMG issue. This maybe a GMAC/Cerberus challenge. We all know they are stretched thin. CMG quit doing all exotic and alt-a business early last year to focus upon the HOA and Fannie/Freddie business, which are both very low risk. The volume levels CMG has been putting out have been rising every month. Last I heard they were doing well over $150 million per month and if I remember correctly, and maybe they are reaching their caps with what GMAC will fund. There should not be a real 'funding' issue because these loans are dry funded and CMG likely receives payment within a couple of days.

Every investor is trying to lighten up on their mortgage exposure, so maybe GMAC tightened their guidelines overnight, did not give CMG any leeway on the delivery of loans currently in the pipeline, and CMG is scrambling to find another investor that will do more 'expanded' guidelines for the unfunded loans. This happens quite often. Look how fast WAMU decided to get out of wholesale...if you were a broker without a loan in their shop within two days after the announcement, you were out of luck. Investors do the same to mortgage bankers too. As a mortgage banker when investors pull out, you get little notice if any in this market.

The deteriorating credit market conditions and intense LIBOR volatility and speculation in recent days coupled with this program being based upon LIBOR, may lend credence to something going on at GMAC. As a matter of fact, this program averages 75bps over the 1-month LIBOR, which is a extremely low rate in this credit environment.

I have not heard anything that would lend me to believe that CMG is going down, especially given their conservative nature over the past 12-18 months. This would actually be a shame because I truly believe that the Home Ownership Accelerator is a phenomenal loan program for the right borrowers. If I would have had one on my homes for the past several years, I would likely own them free and clear right now.

Best,

Mr Mortgage

CA HOME PRICES IN FREEFALL DUE TO LACK OF JUMBO FINANCING

The lack of jumbo loans has destroyed the CA real estate market. Without aggressive, affordable jumbo loans, prices will naturally gravitate towards the most available financing, which is Fannie/Freddie $417k loans. 90% of the most widely used loans in CA over the past several years have vanished in the past 6 months. The new Fannie/Freddie 'ConJumbos' carry a rate much too high to complete with the affordibility of the programs that were lost. Now that all the exotics and jumbos are gone, home prices will also have to gravitate towards borrower qualifications using real household income. This means that if the average household income in San Francisco Bay Area is $85k, that borrower can qualify for about a $350k loan. Currently, the average home price is closer to $550k meaning we could have alot further to drop. Now, that we are back to traditional lending, historical valuation measures must be considered such as 3-4x household income, rental cap rates ect. As prices drop, defaults natually rise across all borrower types due to the 'negative equity effect'. Banks then take more losses, tighten credit further and this never ending snowball cycle continues.   -Best, Mr Mortgage

San Francisco Home Sales Fall 41% Amid Tighter Credit (Update1) 2008-04-17 13:53 (New York) By Dan Levy

April 17 (Bloomberg) -- Home sales in the San Francisco BayArea dropped 41 percent to the lowest level for a March in more than two decades as stricter mortgage standards reduced the number of potential buyers and prices fell, DataQuick Information Systems Inc. reported.

The number of houses and condominiums sold in San Francisco, Santa Clara, Marin and six other counties fell to 4,898, the seventh consecutive month that sales reached a record low, La Jolla, California-based DataQuick reported today. The median price decreased 16.1 percent from a year earlier to $536,000.

Sales are declining as lenders require higher down payments and credit scores and buyers have difficulty obtaining mortgages above $417,000, known as jumbo loans. The Bay Area median price would have been closer to $597,000 last month if jumbo availability had ``remained stable,'' DataQuick said.

"It still appears that a lot of Bay Area activity is just on hold, waiting for the mortgage markets to open back up,'' Marshall Prentice, DataQuick's president, said in the statement.

Home purchases made with jumbo loans accounted for 29.8 percent of sales in March, down from 62.2 percent a year earlier, said DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, which began collecting the data in 1988.

Editor: Peter S. Green, Walid El-Gabry. To contact the reporter on this story:
Dan Levy in San Francisco at +1-415-617-7077 or [email protected]

S&P May Downgrade $57 BILLION in Subprime

Here we go again...more subprime downgrades = more write downs. As housing values continue to fall, risk modeling changes forcing the raters to raise loss expectations. Most of these $57 billion have likely been downgraded, perhaps many times in the past. The negative equity snowball effect is still growing. If you look at the ABX's, most are still at or near all-time lows so expect more to come. I remember 'them' trying to cast doubt on the accuracy of the ABX, but as every month goes by, it looks as though the ABX was th emost accurate gauge yet. - Best, Mr Mortgage   ABX Quotes... http://www.markit.com/information/products/category/indices/abx.html

Wed Apr 16, 2008 6:04pm EDT

NEW YORK (Reuters) - Standard & Poor's on Tuesday said it may cut $57.1 billion of subprime-related debt due to continuing delinquencies and a worsening outlook, the rating company said. S&P will likely lower many of the ratings over the next few weeks because monthly performance data shows delinquencies and foreclosures continue to rise for deals issued in the first half of 2007, the rating company said. "Today's rating actions incorporate our most recent economic assumptions and reflect our expectation of further defaults and losses on the underlying mortgage loans," S&P said in a statement.

http://www.reuters.com/article/telecomm/idUSN1517630620080416

MR MORTGAGE - ALT-A EXPOSED...MUCH WORSE YET TO COME

The ALT-A universe, nearly twice the size of the subprime universe, is headed for disaster.  Are you prepared? - Best, Mr Mortgage

http://www.youtube.com/watch?v=pmeBSWI9sF8

Mr Mortgage Breaks Down March Foreclosure Disaster

http://www.youtube.com/watch?v=lkQz9Aw4dNo

Stay tuned for another video coming tonight that shows how ALT-A is a mega disaster waiting in the wings. The similarities between ALT-A and subprime are striking. And guess what...the Fed was nice enough to provide all the info for us to use. -Best, Mr Mortgage

LIBOR Manipulation by the Banks? This is a BIG ONE

This could be an ultimate 'Black Swan Event' if true. THE PLOT THICKENS... This MEGA NEWS, reported this morning in the Journal, is being blown off for all intents and purposes by the financial press today. Probably because the ramifications are so great they don't understand how to report it. Entire financial systems and infrastructures are based upon LIBOR! If we find out the reported LIBOR pricing is being jacked-around by banks that are afraid to report how much they are paying for short-term loans and how desperate they are for cash and that LIBOR pricing is deemed unreliable, the consequences could be devastating. It essentially means that everyone with a loan based upon LIBOR is paying artificially lower rates! No puny Fed or ECB cuts or new auction facilities would be able to fix this problem.

The exposure is in the TRILLIONS and this is something that is NOT ON THE RADAR of the financial markets until now. Scott Peng at CITI said "the long-term psychological and economic impacts on the financials markets are incalculable and if banks told the truth about their borrowing costs, the 3-month LIBOR would be as much as 0.3% higher."  Millions of mortgages around the world are based on LIBOR...talk about resets!

Very few knew or even considered that this may have been happening. Banks lying because they are scared to tell how much they have to pay for cash would be a mega-event that would have swift and immediate consequences. If proven true, it could create an event and ripple effect that would make the Bear Stearns event look like just another day...on scond through the Fed made it seem that way anyway. Stay tuned, I have a feeling this story will grow large in the next couple of days. - Best, Mr Mortgage

Or, in this brave world of 'the Fed will fix everything',  will they just blow this off as well.

http://online.wsj.com/article/SB120831164167818299.html

2PM PST -BREAKING CA FORECLOSURE NEWS NOBODY REPORTING -ACCELERATING FAST

Below are the real March foreclosure numbers for CA just released minutes ago from ForeclosureRadar. Sit back, relax, have a large bottle of brown liquor nearby and read away. Remember when reading, that Notices-of-Default lead foreclosures by several months in some cases. Also remember, this housing and credit crisis will not end until home prices/sales/foreclosures bottom and stabilize. By the looks of the most recent data, that is a long way off.

**In CA for March, there were 27,541 FORECLOSURE FILINGS and 42,704 NOTICES OF DEFAULT for a total of 70,246 early/mid stage foreclosure filings. This is the killer that nobody reports...in CA in Feb, ALL HOMES (New & Existing) SOLD WERE ONLY 20,513. ALL NEW HOMES SALES for the ENTIRE 10-STATE WESTERN REGION in Feb were only 13k and ALL EXISTING HOME SALES for the ENTIRE 10-STATE WESTERN REGION were only 55k. One more thing...the MAJORITY of the Notice of Default surge is not from subprime loans. Not even close. I can't specifically tell you which program types are defaulting to the greatest degree, as that is part of a paid service rolling out soon, but I can say they are not subprime and they are not fixed...actually they likely are subprime but the ratings agencies just haven't got there yet!

This means that March CA foreclosure activity is...A) greater than all THE HOMES PURCHASED IN THE WESTERN REGION the month prior. B) nearly 350% GREATER than all the homes bought in CA alone! C) Not primarily a subprime problem. This is a disaster.

Also note that repossessed homes that are sold through a real estate agent count in the Existing Home Sales number, so the problem is alot worse than the public data show.

Foreclosure sales at auction declined 6.5% to 15,833 units likely due to the unavailability of financing and general fear.

Wow!! ONLY 2.3% of foreclosed homes sold at auction...the rest went back to the lender swelling inventories...how about tham apples Charles Bederman. This is despite an average discount of 21% with 39% of the homes offering a 30% or greater discount.

In summary, the worst in CA is absolutely still to come for housing. And everyone is too busy trying to figure out how to bail people out and focusing on subprime to realize that WE HAVE NO JUMBO LOAN PROGRAMS. The Fannie/Freddie 'conforming/Jumbo' programs stink, as they have very few programs available and nobody wants a 7% 30-yr fixed rate loan. Why, when they have an exotic currently and their payment is one-third of a 30-yr fixed. It is all about the monthly payment, remember. For purchases, a 7% 30-yr fixed with a large down payment does not buy the average household much home.

Given this, the worst is yet to come for the financial markets because until real estate quits crashing and goes through a long period of stabilization there can be no basing and subsequent recovery. Either that or bring back all the exotic loan programs and the problems end tomorrow. - Best, Mr Mortgage

This report compliments of data provided by ForeclosureRadar...nobody compares to their accuracy, timliness or depth. You can sign up for your free monthly report by going to the site link above.

FORECLOSURE RADAR MONTHLY CA FORECLOSURE REPORT

Download Mar_2008_CA_Foreclosure_Report.pdf 

Back-Up data for Mr Mortgage analysis in addition to the ForeclosureRadar report:

DataQuick Monthly Home Sales Report

Realtor.Org New Home Sales Data

Census Bureau New Home Sales Data

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Businesses looking for more detailed CA foreclosure information and analysis BY BANK on the mortgage products driving this crisis, the real conditions on the ground and what is likely to come next, please contact me at [email protected] .

Coming soon -

-Data on every foreclosure by bank (ground zero for the housing crisis)

-Daily updates on foreclosure sales (only source of same day housing sales data currently available)

-Exclusive auction discount data (an early look at which banks are dealing or need to deal)

-Auction pull-through data (what percentage is selling at auction from which banks)

-Which banks maybe delaying foreclosures and why

-Current and projected REO inventories

-Rates and velocity of change in NOD's, foreclosures and REO by bank and market graphically displayed (bank specific risk-management failures)

Foreclosures/Defaults Surge In March - "Foreclosures Have Become The Real Estate Market"

Numbers are just getting worse month over month. The 'Foreclosure Market' has quickly become the 'Real Estate Market'. The 'negative equity effect' is in full force, as people walk from their homes and chose to rent vs. paying 2 to 3x for a mortgage, home ownership and all the other expenses that come along with it. Today, the ForeclosureRadar CA foreclosure report comes out and I will have it posted as soon as it is released to the public. On top of it all, there are no 'affordable' mortgage programs to help people in higher-priced States such as CA, so you cannot refinance out of your problems. This is all going down a road that will lead to a national 'loan amount reduction' bailout, where the Fed prints money, mortgage balances are reduced across the board and overnight, everyone is right-side up in their homes again. Either that, or they bring back all the exotic/affordable loan programs. -Best, Mr Mortgage

U.S. Foreclosures Jump 57% as Homeowners Walk Away (Update2)  By Dan Levy

April 15 (Bloomberg) -- U.S. foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier as adjustable mortgages increased and more owners gave up their homes to lenders.

More than 234,000 properties were in some stage of foreclosure, or one in every 538 U.S. households, Irvine, California-based RealtyTrac Inc., a seller of default data, said today in a statement. Nevada, California and Florida had the highest foreclosure rates. Filings rose 5 percent from February.

About $460 billion of adjustable-rate loans are scheduled to reset this year, according to New York-based analysts at Citigroup Inc. Auction notices rose 32 percent from a year ago, a sign that more defaulting homeowners are ``simply walking away and deeding their properties back to the foreclosing lender'' rather than letting the home be auctioned, RealtyTrac Chief Executive Officer James Saccacio said in the statement. CONTINUED - CLICK LINK BELOW

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahJfJhKyxAWI&refer=home

WELLS FARGO & GOLDMAN SUCHS WARN OF STOCK 'BLOODBATH'

HEY!! Finally, these two companies are telling the truth. Maybe there is hope after all. We will see if this new-found honesty holds when Wells reports its earnings scheduled for Wed, prior to the opening of the US market. Banks telling the truth about their holdings and their value (transparency) is the only shot at reviving the credit markets. -Best, Mr Mortgage

Goldman Sachs and Wells Fargo Warn "DELUSIONAL" Investors on Stock By Ambrose Evans-Pritchard, International Business Editor - Last Updated 1:158am BST 15/04/2008

Wall Street faces the growing risk of an equities bloodbath in coming months as the credit crunch spreads to the wider economy and earnings crumble, according to a pair of grim reports issued by Goldman Sachs and Wells Fargo.

	Goldman Sachs said the key for equities will be the full-year guidance offered by companies

David Kostin, the chief US investment guru for Goldman Sachs, expects the S&P 500 index of Wall Street equities to plummet a further 15pc over the "near term" as companies scramble to lower their outlook for this year.

"Although only a few firms have reported first quarter results, early signs are awful. We expect a swath of lowered profit guidance," he said in a research note published today, entitled 'Fasten Seatbelts'.

Mr Kostin, who replaced the ever-bullish Abby Cohen as chief strategist in December, expects the S&P index to reach 1,160, which would amount to a fall of 27pc from the bull market peak of 1,576 in September and enter the annals as a relatively severe bear market.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/14/bcngold114.xml&CMP=ILC-mostviewedbox

Wachovia Drops a Bomb...The 'Pay Option Implosion' Has Begun

First, they moved up their earnings date four days to today. Second, they miss horribly - analysts were expecting 40 cents and they announced NEGATIVE 14 cents. Third, they cut their dividend drastically. Fourth, they raised $7 Billion in combo of common and preferred shares. Terms of their offering...$3.5 bil in preferred shares at 7.5% coupon and 30% conversion premium PLUS 146 million common shares at $24. Given they are one of the largest Pay Option ARM holders in the world, this is likely only their FIRST capital raise despite what Goldman is trying to push this morning.

Wachovia, who bought World Savings/Golden West a couple years ago and inherited $120 BILLION in Pay Option ARMs in the process, is having trouble. The is undoubtedly due to their massive expose to the Pay Option ARM. As you all know, Wach adopted the Pay Option ARM as their primary portfolio mortgage since the acquisition and are still doing commercials to this date with people dancing around their house shaking their bodies and dancing because they can make a much lower mortgage payment when they want to and accept negative amortization (mortgage balance INCREASES). Absolutely irresponsible! Pay Option ARMs were in part responsible for the massive losses from all the players who were the largest players in the program including American Home Mortgage, Countrywide, IndyMac, Downey, First, Fed Bank United, Lehman and Bear. In addition, when they go bad they are total losses in many cases because most are in a severly negative equity position.

We have learned in the past few months, that negative equity is a leading cause of loan defualt, even more so than periodic ARM adjustments. This is why Pay Option ARMs are essentially worthless and Wachovia will be stuck with these in perpetuity awaiting their default or modifying loan balances lower one by one.   

Pay Option ARMs have just started to implode with the big bang coming from 2010 - 2012 unless housing magically appreciates some 5-9% per year going forward (compensate for neg-am) and somehow makes back most of the losses already taken before these loans implode. Remember, this loan programs was the fastest growing from 2005-2007 when prices were at their peak, meaning this group of loans should be some of the worst performing going forward. The ratings agencies just have not got there yet, as usual.

Pay Option factoids...80% of these loans were done in bubble states, 80% of the people pay the minimum monthly payment and accept the neg-am; most of those have an increase in mortgage balance of 5-9% per year, and in 2006-2007 80% were stated income. There are reports out saying at least 50% of all Pay Option ARM borrowers have a second mortgage as well.

This is a great chart of the ARM reset catastrophe  - take a look at the Pay Option Implosion coming soon. This could make the 'Subprime Implosion' look like a walk in the park because Pay Options cut across all socio-economic boundaries with these loans being most prevalent in higher-priced bubble regions. -Best, Mr Mortgage

http://bp2.blogger.com/_nSTO-vZpSgc/R_HlCECrufI/AAAAAAAACZE/E1WPLRuaWmY/s1600-h/Mortgage-Rate-Resets-1.png 

INVESTMENT BANK'S LIES IN BLACK & WHITE

this is a killer. Below are write-down covering all categories including subprime. We know full well these are a SMALL FRACTION of what lies ahead. Wells Fargo is not even on the list despite owning $84 BILLION in Home Equity lines/loans that are presently worth pennies on the dollar. Look at Lehman! Haha. Look at Chase...they have more Home Equity Lines/Loans than Wells Fargo. So does Bank of America. Funny, the CNBC crowd was pushing that it was the 'kitchen sink quarter' just like they tried to do in Q3. -Best, Mr Mortgage

UBS (UBS): $37.4 billion
Citigroup (C): $21.2 billion (expected further loss of $18 billion in Q1, 2008)
Merrill Lynch (MER): $19.4 billion
Morgan Stanley (MS): $12.9 billion
Deutsche Bank (DB): $7.1 billion
Bank of America (BAC): $5.7 billion
Royal Bank of Scotland (RBS): $5.6 billion
Credit Suisse (CS): $4.7 billion
Goldman Sachs (GS): $3.7 billion
Lehman Brothers (LEH): $3.3 billion
Barclays PLC: $3.3 billion
JP Morgan (JPM): $2.9 billion
Bear Stearns (BSC): $2.75 billion
HSBC Holdings: $2.1 billion

http://freundinvesting.com/2008/04/12/a-tally-of-bank-and-ibank-write-downs/

ALSO -this, from a friend regarding Erin Callan, CFO of Lehman, and her earnings call recently. She used the following words the respective times. She is the best spinner out there (no pun intended).

STRONG 24
GREAT 13
INCREDIBLY 8
ATTRACTIVE 6
DIFFICULT 7
CHALLENGING 5
TOUGH 1

CITI & MER to Write-Down Another $15 Bil...FOR NOW

NOT SO FAST! I thought last quarter was it...so now more write-downs and they are calling it the 'trough'. We all know that is not the case. The operative statement in this story is 'subprime', because these write-downs only are on their subprime boo. What about other mortgage types such as alt-a, prime and home equity lines/loans? What about commercial paper, leveraged loans, auction rates, and the multitude of acronyms used by the financials alchemists over the past several years to peddle their trash off as treasure.   -Best, Mr Mortgage

CITIGROUP and Merrill Lynch will heap further pain on Wall Street this week as they reveal additional sub-prime write-downs totalling $15 billion (£7.6 billion) or more. In another sign of the intense pressure on leading banks, Deutsche Bank is attempting to offload some of its €35 billion (£28 billion) of toxic debt to a consortium of private-equity firms. Huge exposure to American mortgages is expected to result in Citi taking a $10 billion hit to its accounts, dragging the bank to a first-quarter loss of almost $3 billion. Some analysts believe Citi’s write-downs could stretch to as much as $12 billion. Merrill will suffer $5 billion of write-downs, analysts say, which would push the bank $2.7 billion into the red.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3671568.ece

DAVID EINHORN SPEECH (4/8) ON THE BROKERS - A MUST READ

David Einhorn's speech, Private Profits and Socialized Risk' attached here is riveting. Lehman, Merrill, Goldman, Morgan, the ratings agencies, SEC, Fed etc tricks are exposed. I guaranty, you will read this several times. I did.

I will be doing a YouTube video on this shortly but wanted to get it out there. I got this a couple of days ago and was told by Mr Einhorn, himself, this morning "it is a free country and you are free to agree or disagree.  The letter is public in my mind."

So here ya go...This needs to be read by everyone. -Best, Mr Mortgage

Download david_einhorn_private_profits_socialized_risk_40808.pdf

Morning's Economic Data a Total Disaster

My o' my what a disaster on the economic data front. Even without the huge GE miss, these data on their own could have caused the same reaction in the markets. Good thing is, they are buying Bonds pushing yields lower. In the 'good 'ol days', this would have driven mortgage rates lower, as mortgage bonds more closely tracked the 10-year Note. While today's Bond rally may cause rates to move lower, the opposite could happen if investors shun anything but US Treasuries due to the obviously worsening US economic situation and sell Fannie/Freddie mortgage backed assets like they did last month. We will see. You know things are not 'contained' when Bonds rally and mortgage rates do not fall. -Best, Mr Mortgage

IMPORT/EXPORT PRICES
Month-over-month 2.8% vs 2.0% expected
Year-over-year +14.8% vs 13.7% expected
(these numbers will likely rise, because components of the numbers above reflect prices on orders done months in the past)

APRIL PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE
63.2 actual vs 69 expected (A 26 YEAR LOW)
1-year inflation expectations at 4.8% vs 4.3% expected in March

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Lehman, S&P & Moody's Gaming ("testing") the Fed...

My only thought other than 'disgust' is that LEH is such a financial train-wreck they need to do everything they can, despite how desperate it is and looks, to stay alive. Isn't this type of financial engineering what got them all in trouble in the first place? Got to hand it to them though, if the Street won't buy your trash, make it look slightly different and pawn it off on the Fed. -Best, Mr Mortgage

NEW YORK (Reuters) - Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research) repackaged unsold debt and used the Federal Reserve's new borrowing facility to convert loans that investors mostly rejected into cash to finance its business, the Wall Street Journal reported.

According to the Journal, Lehman transferred $2.8 billion in loans that included some risky leveraged buyout debt into a new investment entity called Freedom.

Freedom then issued debt securities backed by the loans, and $2.26 billion of the securities got investment-grade credit rankings from Moody's and Standard & Poor's, according to the report.

The bank used some of those securities as collateral for a low-interest, short-term cash loan from the Federal Reserve, the Journal said, citing people familiar with the matter.

The move was meant as a test to see what the Federal Reserve would accept, and the size of the loan was not material, the Journal added, citing a person familiar with the matter.

Lehman representatives and the Federal Reserve could not be reached immediately for comment.

(Reporting by Aarthi Sivaraman; Editing by Erica Billingham)

GE MISSES! Down HUGE Premarket...

Now, this is news...and forward looking news. GE doesn't miss. This is a joke right. They are the absolute proxy for the global economy. Think we maybe headed into a recession now? Humm? This is most definitely a wildcard that absolutely destroys the perma-bull's 'the bottom is in, buy all the dips with impunity' thesis. This just maybe the smoking gun that proves things are accelerating even after massive Fed intervention. This miss likely took GE by surprise too or Immelt would have warned...that is the story within the story. Bubblevision is freaking out trying to turn urine into lemonade of course. Hey, maybe CNBC (owned by GE) will have to fire Dennis Kneale in a cost-cutting measure. We will never get so lucky. In my opinion, not only does this miss show things are getting worse by the week, but it shows ANALysts are worthless. They don't have their crap together this quarter as usual. Their estimates for this quarter/year and especially 2009 are an absolute joke. Hey analysts...FALLING HOUSING PRICES DOES NEGATIVELY EFFECT THE CONSUMER.  Rising housing prices did the opposite for many years. See the correlation? You figure the rest out and how it applies to earnings. Oh ya, Dick Bove, please retire. Nobody else needs to lose money by you constantly calling a bottom that maybe a long way away. -Best, Mr Mortgage

GE Says Profit Fell, Citing Finance; Forecast Reduced (Update2)    

By Rachel Layne

April 11 (Bloomberg) -- General Electric Co. said first- quarter profit fell 12 percent, missing analyst estimates, because it couldn't complete asset sales and had higher-than- expected losses at its finance businesses due to disruptions in global capital markets. GE cut its full-year forecast.           

Profit from continuing operations dropped to $4.36 billion, or 44 cents a share, from $4.93 billion, or 48 cents, a year ago, Fairfield, Connecticut-based GE said today in a statement, trailing the average analyst estimate of 51 cents. GE shares declined in Germany.

http://www.bloomberg.com/apps/news?pid=20601087&sid=akzHhrEzO6hU&refer=home
    

Bear Stearns FINIALLY Tells The Truth

I guess better late than never. This should be a proxy for what the other broker's earning should have looked like if it was not for their fraudulent accounting practices. My o' my, were those quarterly reports a fun read...especially GS and MS (the good guys). HAHA! As it turns out they may have more to hide than LEH and MER. Don't get me wrong, they are likely all insolvent but the balls of GS and MS are of extremely large size. This is a great read...especially what the dopey reporter said in the last sentence "The stock has been trading in a range of $2.84 to $159.36 for the past twelve months," BWHAHAHA. That is quite a 'trading range'. - Best, Mr Mortgage

4/10/2008 8:36:37 PM New York-based investment banking firm Bear Stearns Companies, Inc. (BSC) Thursday said it currently expects first quarter profitability to be substantially lower than the prior-year results. The company also announced a delay in filing its financial reports for the first quarter.

http://www.rttnews.com/apps/deskalert/article.asp?date=04/10/2008&item=1461

2pm EST - Morgan Stanley & Wells Fargo Falling Apart

Morgan (MS) - under performing the market is a big way...could it be THE $8.4 FREAKING BILLION GAIN ON DERIVATIVES CONTRACTS, disclosed in its Q. THE FRAUD HAS TO STOP NOW! Lehman, Merrill and Goldman are also weak today but MS is the stand-out as of now. If we are lucky, they all roll over hard into close, which is a distinct possibility.  Higher than normal volume today vs. this week.

Wells (WFC) - Stock price acting like Morgan. I smell some ugly news...this is just a hunch but people know how to read Q's alot better now, as evidenced by how quickly the Lehman, Goldman and Morgan lies were uncovered. Much higher than normal volume today vs. this week.

Annaly (NLY) - Have a seller at/around $16 in the past few days. I still think there is news here to.  9:1 leverage does not work anymore. They have not said a word.  Too quiet. Much higher than normal volume yesterday and today vs. this week.

-Best, Mr Mortgage

ECB's Trichet Not Ready To Cut Rates...'Inflation Concerns'

Finally, some responsible Central Banking. He gets a free look into the mess the Fed made and doesn't want the same heat. It will be interesting to watch this unfold. The English caved last night but that doesn't matter much in the grand scheme other than to those who believe a global interest rate decrease in coordination with all the world's Central Banks will start soon. I guess Trichet didn't get the fax. This news should be perceived negatively for US equities although it was widely expected. -Best, Mr Mortgage

Trichet Not Ready to Cut Rates Even as Risks Mount (Update3)    

By Christian Vits

                                                             

 

April 10 (Bloomberg) -- European Central Bank President Jean- Claude Trichet signaled he's still not ready to cut interest rates even as the credit squeeze poses a greater threat to economic growth than policy makers anticipated.           

``We are experiencing a rather protracted period of temporarily high annual rates of inflation,'' Trichet said at a press conference in Frankfurt today after the ECB kept its key rate at 4 percent. While financial-market tension may have ``a broader than currently expected impact on the real economy,'' ensuring price stability is ``very serious for us,'' he said.    

The Bank of England lowered its benchmark rate a quarter- point today and the Federal Reserve has slashed its benchmark after the U.S. housing slump pushed up the cost of credit worldwide. With euro-region inflation running at the fastest pace in almost 16 years, the ECB is reluctant to follow suit.

http://www.bloomberg.com/apps/news?pid=20601087&sid=armg9RkeRAII&refer=home

    

Wilbur Ross May Back Out of HR Block Deal! This 'One' Will Hurt

The 'hero' is getting cold feet after undoubtedly getting screwed by the American Home $50 Bil in Pay Option ARM servicing. I knew buying the servicing on $50 Billion in Pay Option ARM from American Home hurt him in no time. Remember, when he bought AHM, the Pay Option ARMs were not defaulting to any great degree yet. Since then, they have surged. I actually sent him a letter last year with many reasons not to. How the hell was he thinking he could pay advances on $60 billion in HRB (Option One) subprime with a current 40% default rate and a 50% recovery maximum on top of AHM's issues?

HRB carries a lofty valuation and have come through the subprime crisis with their stock price unscathed. But if not for the $1.1 Bil valuation they place of Option One and $1 Billion Good Will carry, these guys would have a major negative book and NO CREDIT LEFT. They owe SEVERAL Billion in short-term debt that they won't be able to roll and just sold $600 mil in 5-year notes so they are likely out of firepower. Best of all, their income is totally predictable and could take a nice hit going into recession meaning they have no way of a large surprise like 'the new HRB Phone'.

This could be the end of HRB. Option One was in the top 5 of all subprime lenders for YEARS running. No other company that did as much subprime as they did through Option One has skated through the subprime crisis without nearly collapsing and I suspect HRB will end up being along the same story lines. Maybe when this deal falls apart they will be forced to tell us about their off-balance sheet subprime loan exposure they have kept so secretive. I have heard from a couple of reliable sources their trusts own some $25 - $30 bil in subprime STILL, which would match up to their production levels in the 2nd half of 2006 when the secondary market fell apart for subprime loans into the later half of 2007 when they stopped doing subprime. They could be carrying an entire years production.   - Best, Mr Mortgage

BREAKING...HRB - Wilbur Ross says his planned deal to buy HRB's mortgage servicing unit has been thrown into jeopardy by bankrupt American Home Mortgage Investment Corp. - DJ

 

MORE LEHMAN TROUBLE...CLOSED 3 FUNDS. Sounds Like Bear Stearns!

I am fed up with all the bullshit and lies. Today's Level 3 growth reported by LEH, GS and MS was just beyond belief and now more trouble. If you remember, this is how Bear began it's fall from the peak...by closing down 3 funds and taking the 'assets' back on the balance sheet. Well, there goes 25% of the $4 Bil LEH raised. It won't be long now folks. This is all coming to a  head quickly.  -Best, Mr Mortgage

Company Takes  $1 Billion in Assets Onto Balance Sheet

By PETER EAVIS and SUSANNE CRAIG April 10, 2008

Lehman Brothers Holdings Inc. liquidated three investment funds after stressed markets caused the funds' assets to decline in value, according to a quarterly financial filing Lehman made Wednesday with the Securities and Exchange Commission.

The New York investment bank ended up taking onto its balance sheet $1 billion of assets as part of the three funds' liquidation and purchased an additional $800 million of assets from other funds, according to the filing.

In an interview, a Lehman executive said the assets were from two money-market funds and one enhanced-cash fund, a type of vehicle designed to give investors more yield than simple money-market funds.

Lehman's shares took a beating after the filing was released. Its stock tumbled 7.2% to close at $40.54 in 4 p.m. New York Stock Exchange composite trading. Morgan Stanley and Goldman Sachs Group Inc. saw their stock drop 2.6% and 2.7%, respectively.

Lehman, which raised $4 billion in capital to bolster its balance sheet this month, said in the filing the three funds were "liquidated" and the assets of those funds were bought by the bank and put on its balance sheet.

http://online.wsj.com/article/SB120779771018904281.html?mod=yahoo_hs&ru=yahoo

LIBOR SPREADS SIGNAL TROUBLE NOW

This is how many of financials-led market crashes in the past year have began. And when it comes, it comes fast. Look out...this could get interesting. What timing, right ahead of financial's earnings beginning in earnest next week. Hello FASB 157. -Best, Mortgage

09-Apr-08   15:24  Money markets signal fears over banks - FT   

FT reports money markets in the US and Europe are signalling renewed fears about the financial strength of banks, with key confidence barometers almost returning to the levels that preceded the collapse of Bear Stearns. The concerns are being highlighted by the difference between overnight lending rates set by central banks and three-month Libor, the rate at which banks lend to each other. This spread, known as the overnight index swap rate, has been rising in the US and remains elevated in Europe, indicating that banks are reluctant to lend to each other. "Libor is still dysfunctional and, for whatever reason, banks still appear unwilling to lend funds," said Dominic Konstam, head of interest rate strategy at Credit Suisse. The difference between the overnight central bank rates and three-month Libor was typically about 12 basis points before global credit turmoil grew worse last summer. In the US on Wednesday, that spread rose 2bp to 77.5bp. In the UK, the swap rate gained 2.45bp to 95.45bp on Wednesday. In Europe, the swap rate was up 1.29bp at 74.68bp.

FED/BIG BANK NEWS that PISSES ME OFF!

Borrowing to support and grow a business is one thing but borrowing to support or grow your stock price is another. - Best, Mr Mortgage

 

1) US Rep Raises Concerns About Discount Window Abuses Last update: 4/9 1:43:00 PM By Michael R. Crittenden Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--Investment banks may be abusing the money they are borrowing from the Federal Reserve's discount window in order to issue dividends, a top House Democrat said Wednesday. Rep. Paul Kanjorski, D-Penn., the chairman of the House subcommittee with oversight over the capital markets, raised the concern during a hearing Wednesday. He said a hedge fund manager suggested in a recent meeting that large banks may be borrowing billions of dollars in funds made available by the central bank in order to benefit their shareholders. "I myself will be incensed if after going to the rescue of these institutions there are those types of abuses occurring," Kanjorski said. "Particularly I'll be incensed if the Federal Reserve hasn't marched up here with emergency sirens saying there's something happening that shouldn't happen." Federal Reserve Gov. Randall Kroszner said he was unaware of any type of abuses, and that any such actions wouldn't be tolerated. He stressed that the funds have only been made available to a "limited number of institutions with which we have had a long-standing relationship." Still, Kroszner suggested Congress might want to pass legislation creating standards for the use of money borrowed through the Federal Reserve's lending facility. "It is going to be an issue going forward that Congress will need to consider whether there will be additional regulatory authority needed if this facility were to continue," Kroszner said. -By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273;

 

2) Fed to lend additional $50 Bil in UST to Primary's for 28-days- Have to stay ahead of demand I suppose. Funny, things like this pop up more often when stocks are going down.
http://www.newyorkfed.org/markets/tslf/termseclending.cfm

I guess the Fed is trying to stay ahead of the curve in here...why is it when stocks get weak, the Fed perks up. What is their true mission anyway. To fight inflation or fight the natural gyrations of the stock market?  - Best, Mr Mortgage

LEVEL 3 ASSETS SURGE - LEH, GS & MS STILL PLAYING 'HIDE THE CDO' - CROOKS!

Man, this pisses me off. This is just ugly...especially on LEH part. If not for their $600 mil questionable 'income' off deriv losses and likely moving close to $600 mil to L3, LEH may not be around right now. Goldman, the 'cleanest of the bunch' would probably be the dirtiest if not for accounting tricks. This is as fragile of a system as it gets. These crooks are still monkeying with the numbers and everyone, including the Fed is turning a blind eye. -Best,  Mr Mortgage

 

MarketWatch - MS 47.62, -0.47, -1.0%) both disclosed in 10-K filings that Level 3 assets, or hard-to-value corporate loans, residential and commercial mortgage-related securities and other instruments, rose from the last quarter. Goldman Sachs said Level 3 assets rose by 39% to $82.3 billion, or 13% of total assets at fair value, at the end of February from $54.7 billion, or 10% of total assets at fair value, at the end of November. Morgan Stanley said Level 3 assets rose to $78.2 billion at the end of February from $73.7 billion at the end of November, in both cases representing about 15% of total assets measured at fair value.

Dow Jones Newswires - Lehman Bros 1Q Level 3 Assets $42.51B Vs $41.97B At 4Q>LEH...Lehman Brothers (LEH) disclosed in a 10-K filing that Level 3 assets, or hard-to-value corporate loans, residential and commercial mortgage-backed securities and other instruments, rose to $42.51 billion, or 14% of total assets at fair value at the end of February, from $41.98 billion, or 14.4% of total assets at fair value at the end of November.

MORE LEHMAN NEWS - This company is in real trouble. Now is not a good time to be dumping commercial real estate.

Archstone-Smith sells properties to pay debt-WSJ...Last year Tishman Speyer Properties and Lehman Brothers Holdings (LEH) bought apartment owner Archstone-Smith, but no one said they'd have to sell off parts of Archstone to cover its debt. Now they are, reports the Wall Street Journal. Archstone has about $16B of debt that was used to finance the takeover.

FED Looking For Money??? Wild Stuff.

Some of these ideas sound like double-digit Bond yields could be in our immediate future. Oh my.  By the way, fellow futures watcher...futures gave it all up and fast. Now crashing red from very very green. 7:15pm PST  - Mr Mortgage

By GREG IP
April 9, 2008

WASHINGTON -- The Federal Reserve is considering contingency plans for expanding its lending power in the event its recent steps to unfreeze credit markets fail.

Among the options: Having the Treasury borrow more money than it needs to fund the government and leave the proceeds on deposit at the Fed, which would issue debt under its own name rather than the Treasury's; and asking Congress for immediate authority for the Fed to pay interest on commercial-bank reserves instead of waiting until a previously enacted law permits it in 2011.

• The Issue: The Fed has sold or committed a lot of its Treasury portfolio to support markets. Some worry it will soon run out of room to do more.

• The News: The Fed is considering several contingency plans for getting more lending capacity so that won't happen.

• The Bottom Line: The Fed has lots of firepower left before it has to turn to these contingencies.

No moves are imminent because the Fed has plenty of maneuvering room. The internal discussions are part of a continuing effort at the Fed, similar to what is under way at foreign central banks, to determine its options if the credit crunch becomes even more severe. Fed officials believe the plans largely eliminate the risk that the Fed will exhaust its stockpile of Treasury bonds and thus lose its ability to backstop the financial system, as some on Wall Street fear.

British and Swiss central banks also are contemplating contingency plans. For now, the European Central Bank is reluctant to consider options that require substantial modifications of its standard tools.

http://online.wsj.com/article/SB120768896446099091.html?mod=hps_us_whats_news

 

CITI Selling $12 Bil in LBO Debt - BAD NEWS

7:30pm PST...THE PUMPERS ARE OUT!!! 90 cents on the dollar my butt - The NY Times just reported it is more like 83-87 cents. This is NOT GOOD AT ALL.

http://www.nytimes.com/2008/04/09/business/09citi.html?_r=2&oref=slogin&oref=slogin

2:30pm PST - News just broke on Fast Money and of course they immediately suggested it was 'mortgage' debt, which means 'write-ups' will happen because mortgage debt has been written down to nothing. TOTALLY IRRESPONSIBLE! Below is the real news.  - Mr Mortgage

"The Citi portfolio includes loans used to finance acquisitions by Apollo, Blackstone and TP, as well as debt in their rivals' deals. Apollo would buy about half the portfolio, with Blackstone and TPG taking the rest. Citi declined comment."

ITS LBO DEBT! Similar debt on others books MUST BE WRITTEN DOWN now. That means everyone that has similar debt. Is this CITI all it has to sell? Is this CITI's most valuable paper?

Facts are, CITI thought they would get 103-108 for it and it is likely on their books for 100. The only reason CITI would do this is because they need to raise tier capital now and it may be all they have they can sell. They are low on capital like everyone else. It was sure amusing to see the sheeple jam the market higher on this as the news broke. Now futures are bright red in a 65 point reversal from the highs. How will bubblevision spin this into something great tomorrow.

The only ones who made out was the LBO firm who are BUYING BACK THEIR OWN DEBT. What a deal.

 

IMPORTANT NOTE - There is still a LEH story out there. It is the only financial not screaming higher on this. Made back 50% of its AH fall but stil down 2%. - Mr Mortgage

LEHMAN TROUBLE??? URGENT!!!

Stock getting pounded on VOLUME A/H on no news anyone can find. It bounced in the sham CITI news that Fast Money broke but still way off the closing price, as other financials are rallying. I suspect this will not hold into tomorrow. Will keep you updated.  - Best, Mr Mortgage

FOMC Minutes As Ugly As It Gets...Ya Right.

This FOMC Minutes release is as ugly as it gets for today. The Fed essentially said they HAD to cut, the US economy is in major slowdown mode with major inflationary pressure. Surprise! STAGFLATION! Bernanke has said that many time if you would have listened. You could have learned this would happen in any high-school economics class. - Mr Mortgage

By Greg Robb

Last update: 2:00 p.m. EDT April 8, 2008

 

WASHINGTON (MarketWatch) - Behind closed doors last month, top Federal Reserve officials confronted new projections of a sharp and severe slowdown, leading them to brush aside worries about rising prices and cut rates aggressively, according to minutes of the meeting released Tuesday. The majority of FOMC members said the substantial easing in March was justified given the deteriorating economic outlook, the minutes said. No one seemed in any way comfortable with recent rising prices. But the majority said it still viewed a moderation in price increases later in the year as likely. There had been no real wage gains, they noted. The decision provoked a sharp dissent from two of the Fed's most hawkish regional bank presidents. Philadelphia Fed president Charles Plosser and Dallas Fed chief Richard Fisher both warned that the public was beginning to think that rising prices were here to stay and this sentiment would be strengthened with another aggressive rate cut.

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B28F407EB%2D2226%2D4BAD%2D8D38%2DB6B78466241B%7D&siteid=mktw

Fitch - WAMU Ratings UNAFFCTED By Capital Raise

-Well, this just sucks if you are WAMU or their investors. One would think they would check to see if the ratings would improve before you go throw $7 BILLION into a failing bank. This reminds me of the stupid investment in MBIA at $31 per share that is now worth a THIRD of that. You have not heard the end of this story...what is that saying about 'catching falling knives'? Dummies.    -Mr Mortgage

NEW YORK--(BUSINESS WIRE)--Today's announcement by Washington Mutual, Inc. (NYSE: WM) of a series of capital measures, including the sale of $7 billion in new Tier I capital to a group of institutional investors and the anticipated reduction in the quarterly common dividend to $0.01 per share, is unlikely to affect the credit ratings of WM, according to Fitch Ratings.

Concurrent with the new capital, WM also announced preliminary results for first-quarter 2008 (1Q'08) which include a sizeable net loss of approximately $1.1 billion, attributable primarily to a sharp rise in the provision for credit losses to approximately $3.5 billion, more than half of which will go toward building the reserve.

Fitch currently rates WM as follows:
-Long-term IDR 'BBB';
-Short-term IDR 'F2';
-Rating Outlook Negative.

http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20080408005967&newsLang=en

CITI, Wells and Others Curtail Lending! They Are Broke Too! OUCH!

This is a serious problem...we have no Real Estate loans in CA already. Unless you can live with a $417k, 6%-6.5% 30-yr fixed rate with 5 to 20% there is nothing for you. The new 'Agency Jumbo' loans have harsh pricing adjusters so the rates are closer to 7%...much better than the current 8% from Banks I suppose. But still, I can promise you that unless 30-year fixed rates go below 5.5%, housing and mortgage activity will continue to flounder. Anything higher and the purchase money borrowers can't afford it and the refi money do not need it. Why get out of an exotic loan paying 1% to 5% for a 7% fixed rate?   -Mr Mortgage

Citigroup, Wells Fargo May Fuel Recession by Curtailing Lending

By Mark Pittman, Alan Katz and David Mildenberg
Enlarge Image/Details

 

April 8 (Bloomberg) -- Bank holding companies including Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. have the thinnest safety cushion against losses in seven years. READ ON... http://www.bloomberg.com/apps/news?pid=20601109&sid=a8EGjsM4moS8&refer=home

Mr Mortgage Wells Fargo video from yesterday:
http://www.youtube.com/watch?v=kb9byJ2QWcg

7am - Monthly Pending Home Sales Data Aweful

This is the LOWEST NUMBER SINCE REALTORS STARTED KEEPING TRACK IN 1991! HAHAHAHA. What recovery? The stock market is really looking ahead this time because financials and home builders keep on rallying and home sales keep on tumbling...and it's picking up steam!

Contracts signed in Feb were down 1.9% from Jan and 21.4% below Feb 2007.  The West fell 9/8%, South fell 5,5%,  Midwest fell 3.7% and the East was up +3.5 East.

For us with a half of a brain, WITHOUT LOANS YOU CANNOT BUY HOMES. In CA, for example, we have lost 95% of the most widely used affordable/exotic loan programs. Nobody can afford a CA-priced home with a 7-8% 30-yr fixed jumbo. Unless they bring back all of the exotic loans, give everyone 100% raises or cut home prices in half, sales will continue to tumble. It is that simple. We now have historical loan programs back so we are going back to historical valuations of 3-4 times household income. CA is currently at 7-12 times depending on the area. We have a long way to go.  -Mr Mortgage

6:20am - WAMU Raises $7 Billion at $8.75 Per Share - TOLD YA!!

I told you this was ugly. This makes suspect the valuation of all financials. 100% DILUTION! $8.75 secondary offering of common. This is so ugly. Preferred shares too means death-spiral financing.

WAMU WAS ESSENTIALLY GOING BANKRUPT AND WERE BAILED OUT. You mean to tell me that the stock market has priced-in the possibility of the nations largest S&L going bankrupt? Are you kidding me. - Best, Mr Mortgage

Goldman & Lehman Putting on the Pump - Something Smells

These upgrades are absolutely suspect. This may sound far-fetched but this may have something to do with WAMU and the damage it could cause financial stocks when the terms are announced. Currently the street in all their delusion, is using the LEH capital raise as a proxy for how all other financial insti's will raise money and how those stocks will perform afterward. LEH got lucky because they were failing and people jumped big to make a strong illusion of their strength.

But, I still do not think that is the way it will go for WAMU. See my post below on "WAMU Closes wholesale'. I gave my thoughts there. WAMU is not getting a 'LEH type deal, the street knows it and knows WAMU's deal will be so weak it makes suspect the valuation of all financials going into earnings, where raising capital will be paramount to their very survival.

Today's suspect upgraded from LEH and Goldman below...the Pigmen are at it again. - Best, Mr Mortgage

U.S. Brokers, Asset Managers Raised to `Attractive' at Goldman 
By Joyce Moullakis and Adam Haigh

April 8 (Bloomberg) -- U.S. brokers and asset managers were raised to ``attractive'' from ``neutral'' at Goldman Sachs Group Inc., which said mortgage writedowns may ``significantly exceed'' actual losses. ``We have reached an inflection point for stocks with little credit exposure, or where exposure is marked to market,'' Goldman analysts including London-based Richard Ramsden wrote to clients today. ``Investors can benefit by distinguishing exaggerated fears from legitimate, ongoing problems.'' New York-based Goldman reiterated its ``buy'' recommendation on Lehman Brothers Holdings Inc. It rates Morgan Stanley ``conviction list buy.'' It raised Franklin Resources Inc., manager of the Franklin and Templeton mutual funds, to ``buy.'' It also upgraded Bank of New York Mellon Corp., the largest custodian of financial assets, MetLife Inc., American Express Co., and Janus Capital Group Inc. to ``buy.'' FUNNY, NEW YORK MELLON HAD MAJOR OUTFLOWS ON ANY BUYING YESTERDAY AS REPORTED BY THE WSJ.

THIS ONE IS CLASSIC...FNM & FRE upgraded to Overweight from Equal Weight@LEHM Lehman believes GSE's have reached an inflection point and upgraded FNM and FRE to Overweight from Equal Weight due to improvements in the company's abilities to deploy capital at higher returns. FNM price target of $46 is unchanged and FRE price target raised to $45 from $42

Mr Mortgage Exposes Wells Fargo Subprime Exposure

this is ugly...subprime rate sheet from August 2006 showing loans for score as low as 500, loans for people with 120-day mortgage lates that should be foreclosed upon and loans to 100% subprime with rates as low as 8%, which is now the same rate as a PRIME 30-yr fixed Jumbo with 20% down. Unreal.

ALERT! 3:30PM EST...WAMU CLOSES DOWN WHOLESALE

10pm PST - Update...management still in meetings. I think the street got this one wrong. They ran WM stock price today as if it was another LEH style BS bailout. I have a hunch this will be totally different. Perhaps $2.5 Bil in common, $2.5 Bil in preferred...potential death-spiral financing. And no 7.25%...may be much higher.

Nobody is going to take on $65 Bil in Pay Option, $60 Bil in Home Equity, $20 Bil in Subprime and $40 Bil in weak credit card debt on the cheap. This is a bailout deal and will make suspect all other financial insti's who need to raise money over the next few weeks. The street was using LEH as a proxy for the way all other deals would get done...no way you lemmings.

3:3-pm PST - YOU HEARD IT HERE FIRST! More to follow...WAMU closes wholesale lending effective immediately. This Thursday is the last day to submit/lock. It looks like to me, that this $5 billion was a bailout.

-Best,

Mr Mortgage

WAMU May Get $5 Billion! SO WHAT!

This is a pee-hole in a snow-bank compared to their massive exposure of toxic Pay Option ARMs, Subprime and 2nd mortgages. $5 billion may be a couple months worth of losses in the coming months. Funny how these firms think they can call the bottom. I remember Warburg paying $31 per share for MBIA. That was STUPID! Good luck with your WAMU investment. You will need it. - Best, Mr Mortgage

By MATTHEW KARNITSCHNIG, VALERIE BAUERLEIN and ROBIN SIDEL
April 7, 2008; Page A1

Private-equity firm TPG and other investors are close to a deal to invest $5 billion in Washington Mutual Inc., people familiar with the matter said Sunday.

The injection of new capital would allow the country's largest savings and loan to ease its pressing capital requirements, the people said, amid punishing losses from the national mortgage crisis. But it would substantially dilute current WaMu shareholders, who have already lost 74% of their investment over the past year. WaMu's market capitalization on Friday was just under $9 billion, after its shares dropped 11% that day.

http://online.wsj.com/article/SB120753199958893909.html?mod=MKTW

Auction-Rate Collapse Quadruples Expenses for Bond Alternatives

This is sad...but 'it is all contained'!

http://www.bloomberg.com/apps/news?pid=20601087&sid=ateKkn9DEjgk&refer=home

Auction-Rate Collapse Quadruples Expenses for Bond Alternatives    

By Jeremy R. Cooke

BARRONS - LEH, MS, GS, MER EARNINGS A SHAM

This is the same story in as my original Lehman video...maybe a Barron's writer actually saw the damn thing. - Best, Mr Mortgage

Wall Street's Latest Illusion
Turning Losses into Paper Profits

By ANDREW BARY  | MORE ARTICLES BY AUTHOR

ALTHOUGH WALL STREET PROFITS ARE under pressure by a host of forces, the tough times also have provided a little-known financial benefit: Some Wall Street titans have been able to book gains from the declining value of their own debt.

These non-cash gains bolstered the bottom lines of Morgan Stanley (ticker: MS), Goldman Sachs (GS) and Lehman Brothers (LEH) in their first fiscal quarters, ended Feb. 29, helping them beat consensus earnings estimates. They had reported the same type of gains in 2007, mostly in the fourth quarter, as credit markets worsened.

Investors, however, should take little comfort from these accounting gains, for two reasons. They provide no cash benefit and, more important, merely reflect investors' growing concerns about the companies' financial health.

Here's how the accounting works: When a company's credit weakens and the yield on its debt rises relative to risk-free Treasuries, the debt becomes worth less to the holder. The financial company, which is the debt issuer, then takes a gain, because theoretically it could buy back its debt below face value.

CONTINUED...

http://online.barrons.com/article/SB120736147391891897.html?mod=9_0031_b_this_weeks_magazine_main

Mr Mortgage's Favorite Websites

www.ForeclosureRadar.com - Best and most current CA foreclosure information. FREE monthly CA foreclosure report. I love this site. I subscribe for $49.95 per month but you don't need to to get the free monthly update and stay ahead of everyone else in the foreclosure knowledge.

www.TickerForum.org - Best mortgage/housing/stock market/financial chat site on the net. Owned and managed by Karl Denninger, this is the place to be to gain real insight on what is happening from day to day. This is a class-act group of like-minded people all out for one purpose...THE TRUTH!

www.ML-IMPLODE.com - Aaron Krowne, with whom I have had the pleasure of speaking to on a regular basis, has been paramount in keeping the world abreast of what is happening with the mortgage meltdown. This site should be the first place you go to for aggregated news on the mortgage/housing sectors. Aaron really knows how to sort through the crap and find the stories that matter.

BANKS, OVERWHELMNED, NOT FORECLOSING

Either 1) they don't have the staff or 2) they don't want the write-downs and are waiting for the big bailout. - Best, Mr Mortgage

Lenders Swamped By Foreclosures Let Homeowners Stay (Update1)    

By Bob Ivry                                                      

 

April 4 (Bloomberg) -- Banks are so overwhelmed by the U.S. housing crisis they've started to look the other way when homeowners stop paying their mortgages.    

The number of borrowers at least 90 days late on their home loans rose to 3.6 percent at the end of December, the highest in at least five years, according to the Mortgage Bankers Association in Washington. That figure, for the first time, is almost double the 2 percent who have been foreclosed on.           

Lenders who allow owners to stay in their homes are distorting the record foreclosure rate and delaying the worst of the housing decline, said Mark Zandi, chief economist at Moody's Economy.com, a unit of New York-based Moody's Corp. These borrowers will eventually push the number of delinquencies even higher and send more homes onto an already glutted market.    

``We don't have a sense of the magnitude of what's really going on because the whole process is being delayed,'' Zandi said in an interview. ``Looking at the data, we see the problems, but they are probably measurably greater than we think.''

CONTINUED -

http://www.bloomberg.com/apps/news?pid=20601109&sid=aOluOO8Vy0gc&refer=home

    

Mr Mortgage Exposes Lehman's Massive Dirty ALT-A Mortgage Exposure

Mr Mortgage gets down and dirty with Lehman, the company most in focus after Bear Stearns' Collapse. Those of us in the mortgage industry know, ALL ROADS LEAD TO LEHMAN. Now, you too can see the type of loans Lehman made for years through it's Aurora Loan Services division, and judge for yourself whether or not their massive exposure to risky ALT-A loans will cause them serious problems in the future.

 

ARM RESETS JUST BEGINNING - A Closer Look At The ARMs Reset Problem

Below is a great piece from Mish regarding ARM resets and how they still present a huge problem going forward. The story mostly covers the Hybrid Intermediate-Term ARMs (3/1, 5/1, 7/1 and 10/1) but also touches upon the most toxic, Pay Option ARMs. For many, including the banks, there is no way out of these loans because there is nothing in existence today that compares to these loan's affordability. The majority of people just don't qualify for a jumbo 8% fully amortized 30-yr fixed rate loan. We have gone back to 1990 lending overnight. Even the new Fannie/Freddie 'jumbos' have significant pricing adjustments, making the rates substantially higher than their conforming products.

There are a few areas in his research I view differently regarding Intermediate-Term ARM's. His Pay Option analysis is on the money. Most of the Intermediate-Term ARM's were done at No Points, meaning a higher interest rate. This is because these loans have a teaser interest only period (in the past, 100-200 bps below 30-yr fixed) for the initial 3, 5, 7 or 10-years and it was assumed borrowers could just refi into a new interest only loan before the teaser period was up. They were wrong. Therefore, there will be payment shock on the majority of these even if they do reset lower. For example, a $400k 3/1 interest only at 5% has a monthly payment of $1667.00 whereas a 4.5% fully indexed monthly payment rate after the first adjustment DOWNWARD is $2026.74. This represents nearly a 20% payment increase.

The Intermediate-Term ARM was widely used from 2003-2005 in CA, in addition to all other bubble States due to its affordability vs. a 30-yr fixed. Each of the major lenders program guidelines differed but many allowed up to 100% combined loan-to-value, as low as 620 scores, qualification at the interest only start rate, up to 50% debt-to-income ratios and went up to $1 million. Stated Income and Stated Asset was allowed. Much of it without major price adjustments higher. In retrospect, these are anything but 'Prime'. The popularity of this loan type diminished in late 2005-2006 when spreads narrowed to the 30-yr fixed and the Pay Option ARM's ultimate affordability features swept the bubble States.

A great percentage of these loans are still in existence because rates have risen so much, borrowers have had no reason to refi. So, in order to keep the ATM machine running, many used Home Equity loans over the years in place of MEW. Due to this and values being off to such a great degree in States in which these loans were the most prevalent, many of the borrowers are currently underwater presenting a much greater default risk than is currently being assumed by the ratings agencies. 

Wells Fargo, CITI, Chase, WAMU, CFC were the primary sources for this money. Thornburg also specialized in this product type, which gives an example of the illiquidity of this product type. 

These loans also came in an Alt-A version called 5/6 or 10/6. They are fixed for the initial 5 or 10 years and then convert to a 6-month adjustable LIBOR based upon that index value plus a margin of 2.25 to 2.75%. The primary sources of this loan type were Lehman, CFC, Wells and IndyMac.

Another factor most forget is the near impossibility establishing a true value for this loan type and what impact they have on a banks balance sheet. These loans all had teaser rates compared to 30-yr fixed because they were meant to be short-term loans or meant to adjust higher after the initial fixed period. These loans were never meant to sit on the books at teaser rates (4 - 5.5%) and below for as long as they have been and will be. Many, including the banks, will be stuck with these for much longer due to the inability to refi without bringing cash in to close or without a principal balance reduction.

http://globaleconomicanalysis.blogspot.com/2008/04/closer-look-at-arms-reset-problem.html