Posted on 08/22/2007 6:07:56 PM PDT by Vince Ferrer
CHARLOTTE, N.C. (AP) -- At the North Carolina offices of mortgage lender HomeBanc Corp., Archie Clark is the only employee left. But in a few days, he'll be gone, too. When Clark finishes helping movers from the company's Atlanta headquarters collect computers and other property, he'll join the more than 25,000 workers nationwide who have lost jobs in the financial services industry since the beginning of the month -- with more than half coming since last Friday.
With few exceptions, the cuts are the direct result of woes in the nation's housing market.
More layoffs are announced daily. On Wednesday, Lehman Brothers Holdings Inc. closed its "subprime" mortgage business, laying off 1,200 workers at 23 offices; Scottsdale, Ariz.-based 1st National Bank Holding Co. closed its wholesale mortgage unit and cut 541 jobs, and Accredited Home Lenders Holding Co. added 1,600 positions to the heap. The night before, banking giant HSBC said it would close a main financing office and cut 600 jobs.
Since the start of the year, more than 40,000 workers have lost their jobs at mortgage lending institutions, according to recent company layoff announcements and data complied by global outplacement firm Challenger, Gray & Christmas Inc. Meanwhile, construction companies have announced nearly 20,000 job cuts this year, while the National Association of Realtors expects membership rolls to decline this year for the first time in a decade.
It's an employment collapse that threatens to rival the massive layoffs in the airline industry that followed the Sept. 11, 2001, terrorist attacks, when some 100,000 employees lost their jobs.
"It's far from over," said Bart Narter, a senior analyst with Celent, a Boston-based financial research and consulting firm. "The subprime lending collapse will continue to ripple through the financial sector."
For five years, the nation's housing market was booming and mortgage companies grew quickly, at times offering lucrative jobs to people with little experience. But as home values declined and interest rates rose in the past year, rising delinquencies and defaults -- especially in subprime mortgages targeted at borrowers with risky credit -- have pounded lenders who couldn't keep pace.
"These kind of mortgage lenders just sprung up like mushrooms and grew like men," said John A. Challenger, chief executive at Challenger, Gray & Christmas. "They staffed up and now you have a bust."
America's largest mortgage lender, Countrywide Financial Corp., began an undisclosed number of layoffs this week. Last week, Arizona mortgage lender First Magnus Financial Corp. shut down its operations and laid off nearly 6,000 workers. On Monday, Capital One Financial Corp. said it would shutter Greenpoint Mortgage, its wholesale mortgage banking business, and lay off 1,900 employees.
"It's only been weeks," Challenger said. "These companies are acting remarkably quickly, stopping on a dime."
Andy Roach didn't foresee the turmoil when he joined Greenpoint in March. As late as June, the 25-year industry veteran thought the business of making "Alternative A" mortgage loans -- geared for those with slightly better credit than subprime borrowers -- was on a solid track.
But in July, he said, spooked investors stopped buying the securities the company sold by repackaging the loans. A little more than a month later, Capital One announced that Roach and about 1,900 of his colleagues across the country were out of a job.
"It was evident that it was serious," said Roach, 46, a regional manager in the Chicago suburb of Downers Grove. "When you can't sell the loans, when there's no market for those loans, it put us in a bad, bad situation."
Clark, 33, headed information technology operations for three HomeBanc offices in the Raleigh area. He had a feeling earlier this month that trouble was lurking, as the company began cutting back on perks and made some initial layoffs. On Aug. 9, HomeBanc filed for bankruptcy protection. They kept him on through the end of the month to collect equipment and "just go in and check on things."
"It was pretty much a free for all in the office, people taking paper, stuff HomeBanc wouldn't need," he said. "I don't feel like HomeBanc did anything. It was a perfect storm of a bad housing market."
Two of Clark's friends have already landed jobs with Countrywide. Another found work with an affiliate of First Magnus, and was almost immediately laid off again. Roach plans to open his own lending business, focusing on commercial business loans and originating home loans himself.
"The mortgage business isn't dead -- there's just going to be less people in it," Roach said.
Associated Press writers Mike Baker and Margaret Lillard in Raleigh, N.C., contributed to this report.
Here's an interesting link for those interested: The mortgage graveyard
knowing the MSM - the number is probably about 1/3 of that..
remember - they are wholly invested in a major economic meltdown to “blame on bush”
fyi
It's a lending bubble...
Anecdotally, I blame developers for building not too fast, but too big.
Builders would rather make 1 home priced at a million dollars, than 10 homes for $100,000 each. Understandable- less labor, less paperwork, more prestige and profit.
But they’re kidding themselves. They lose in the end, not just the buyers who can’t afford huge houses.
Lot of new mortgage companies were created also.
Interest you mentioned this. Just last week we watched a news segment in S. Cal about the high end realestate market, and that these recent events have not even put a dent in the multi-million dollar home market, as a matter of fact, they reported the very high end market is still increasing in value, and they are selling quick.
But I do agree, these home builders building these 3000 square foot McMansions for the middle class are ridiculous, as one factors in cooling and heating cost etc.
Actually, my response is pretty much, ‘so what?’.
Those that were lending too freely to the too high of risk borrower to sustain their business are now out of business. Sounds like a free market at work to me, and, we’ll all be *far* better off for it in the long, heck, even medium term.
A more entertaining site is
The Mortgage Lender Implode-O-Meter - “tracking the housing finance: a saga of corruption, stupidity, and government complicity.”
http://ml-implode.com/
Which has been cloned in a version for tracking the demise of hedge funds (see link at the mortgage site).
Many of these job losses are probably people processing junk mail to my mailbox.
ping
That site was the best form of insight during the New Century BK debacle. I was one of many that was laid off over a conference call with the CEO, who cried and hung up at the end of the call. It’s nice to know he got 5M in executive compensation after running the company into the ground.
Just the beginning.
1 in 50 Californians has a real estate license.
Actually my position is pretty close to yours, although I have been interested in this issue both as an investor in stocks and real estate. I do sympathize with people who lose their jobs, because a lot of people are not out to be crooks, but jut doing a job. I also sympathize towards other people who are getting hurt.
But this day could be fortold literally in the aftermath of the World Trade Center bombing and dot com bust, and its inevitable aftermath is worth learning from.
Wonder if if will have a snowballing effect.
These 40,000 now have no income so they will default on their mortages, etc, etc
The market says there are 40,000 too many positions here.
Good. Proper equilibrium restored.
Well, I think 9/11 was a bit early on this one... ‘04 and ‘05 was when they were giving loans out like money grew on trees in their back yard, and in CA you would go out to see a place 10 minutes after it was listed and you’d give an offer then and there for 10-15% over the asking price and still not get the home. That was a signal that speculation was overly rampant in the system, and, that the mortgage brokers were trying to sell as much as they possibly could.
Now, as the first wave of ARMs started to unlock and the foreclosures started, hedge funds started to ask themselves as to what they were buying within those packaged mortgage securities the mortgage brokers were sellings. So, they said, we won’t buy anything that is less than 90 days old - ie, we want to see at least 3 mortgage payments on each mortgage packaged into the commercial paper we’re buying.
And the jig was up. Mortgage brokers started going bankrupt all over the place as all the risk was pushed down to them in the most brutal way (free market). But the hedge funds and large financials discovred they already bought up all kinds of things that they didn’t have a clue what it was really worth - only what their models told them it was worth. The ensuing panic and drying up of liquidity in the credit markets did the rest. However, it *is* a localized phenomenon - about 5% of 1% of the entire economy, if that. So I wouldn’t stress about it much - in about a year, year and a half it’ll be the bottom of the foreclosure game and then it’ll be time to buy.
Looks like they’re reaping the seeds they’ve sown ...
If massive layoffs is what it takes to right this ridiculous wrong, so be it. The greed and lack of common sense are what is causing this implosion. Seems the lendors/banks refuse to learn from history.
I have ZERO sympathy for the foolish and greedy. Too bad some honest folks got caught up working for lenders that had no business lending. Now many will have to pay the piper.
Millionaires still have the cash to buy new homes and it is much easier to find one of them than it is 10 smaller home buyers.
The builders know what they’re doing this time.
>Wonder if if will have a snowballing effect.<
Of course it will.
ping
Tip of the iceberg.
Desert and resort communities to be harmed the most...
Spot on. The houses on my street are minimum 3500 sq ft. The selling price starts at $200,000. A local developer put two new houses across the street from my cul-de-sac. Both are 6,000 sq ft plus. The developer moved into one of the two houses, then tried to sell it after 18 months. He put it on the market for $797,000 two years ago. It's still for sale. There is also a new business building over my back fence...just over $1 million to build it. These structures are oversize, overbuilt and overpriced for the neighborhood. While I like the prospect of my real estate appreciating as a consequence of living in proximity to these structures, I don't like the impact of higher property taxes. I own my place free and clear...except for property taxes. More taxes does nothing but steal money from my pocket.
“Watch for a wave of foreclosures in San Berdoo, and Riverside Counties, to say nothing of the Phoenix area”
Correct
Things sure have gone south in a tearing hurry in 2007, and 2007 isn’t even 2/3 past yet. I wish their calendar went back further. Haven’t there been other mortgage bust times?
The post 1987 stock market crash — 1990 to 1992 — was no picnic.
A McMansion in my neighborhood was in a similar position with respect to the smaller, more modest houses in the subdivision. The asking price was almost four times the value of my house. I think it finally sold, after a year and a half. At least I don’t see the nutty neighbors that used to live there, the ones that complained about my grape bushes. The only way that such lopsided development can boost the value of the much smaller homes is to make them attractive to buy and demolish for more McMansions. And that’s clearly out in my neighborhood since about half the McMansions around here are for sale.
NINETEEN car garage? He planning to go into the parking lot business? Or keep a Learjet and use the street as a runway?
Maybe the $0.8M house is loaded with special amenities like restaurant quality kitchens, that’s the only thing I could think of. The McMansion I’m talking about certainly was.
Another good place to keep track of the details of the falling and tottering dominoes, and the circling carrion birds gobbling up great chunks of suddenly available assets at fire sale prices, is the Wall Street Journal’s CREDIT NOTEBOOK (forwarded by a friend):
Credit Notebook:
Latest updates on credit crunches, subprime fallout, central-bank moves and market jitters.
August 22, 2007 5:48 p.m.
Wednesday Aug. 22, 2007
Countrywide Stake: Bank of America is making a $2 billion equity investment in Countrywide Financial Corp., the Journal reported. Bank of America will purchase $2 billion worth of preferred Countrywide stock yielding 7.25%, and that can be converted into common stock at $18 a share, those people said.
Lehman & Subprime: Lehman Brothers Holdings, a leader in Wall Street firms’ push to have their own home-lending business, said it will shut down its subprime-lending division, a move that could pressure other investment banks to follow suit. The New York firm said 1,200 employees, or 4.2% of the firm’s work force, will lose their jobs as a result of the closure of BNC Mortgage LLC, which Lehman acquired in 2004. It also expects to record a $25 million charge and a $27 million writedown. “Market conditions have necessitated a substantial reduction in resources and capacity in the subprime space,” the firm said. Shares of Lehman Brothers closed Wednesday at $58.54, up $1, or 1.7%. However, in recent late trading shares fell to $58.42. Posted at 4:28 p.m.
Fisher Remarks: In an interview given before the current market crisis, Federal Reserve Bank of Dallas President Richard Fisher asserted the central bank’s job isn’t to bail out investors who’ve made bad calls, and that it should instead protect the soundness of the financial system. “I do not believe the Federal Reserve’s job is to protect against the failure of specific risk-takers,” Fisher said in an interview with the International Economy magazine, published Wednesday. Instead, the Fed’s job is “is to protect the system itself,” he said. The Dallas Fed said the interview was conducted in June, well ahead of the turbulence that struck in recent weeks. Fisher isn’t currently a voting member of Federal Open Market Committee. Posted 1:40 p.m.
Citi Goes to Discount Window: Citigroup borrowed $500 million from the Federal Reserve’s discount window “on behalf of clients,” the first major U.S. bank to say it has done so since Friday’s interest-rate cut. The company didn’t provided additional details in a short press release, but noted it “stands ready to continue to access the discount window as client needs and market conditions warrant. Citi is pleased to inject liquidity into the financial system during times of market stress and to support creditworthy clients.” Shortly thereafter, Bank of America, J.P. Morgan Chase and Wachovia made a joint announcement that they too borrowed from the discount window. Posted 12:30 p.m.
Jumbo Jam-Up: For the first time, home builders are admitting that the crackdown on jumbo-mortgage lending is depressing sales. Lenders are pulling back and raising the prices on jumbo loans bigger than $417,000. That especially squeezes Toll Brothers Inc., a luxury builder whose average delivered home was priced near $700,000 earlier this year, and WCI Communities, seller of oceanfront condos with multi-million-dollar price tags. “With all the problems surrounding mortgage-market liquidity, there is the risk that home building could grind temporarily to a near halt,” said Gregory Gieber, an analyst with A.G. Edwards. Builders aren’t that downbeat. But Toll Brothers Chairman and Chief Executive Robert Toll warned “mortgage-market liquidity issues and higher borrowing rates may impede some customers from closing, while others may find it more difficult to sell their existing homes.” Posted 12:07 p.m.
Rio Tinto’s Alcan Loan: Global diversified mining company Rio Tinto PLC said that its loan syndication to fund the purchase of Canadian miner Alcan Inc. is closing Wednesday. A Rio Tinto spokesman said completion was subject to finalizing documentation, expected next week. The spokesman declined to state exact dollar figures for the loan, but said the company would be able to make a fuller statement next week. He said the loan was oversubscribed. “We are very happy with the way the syndication has gone,” the spokesman said. Rio Tinto’s underwriters were in the market trying to sell $40 billion of debt into European markets. Rio’s loan is underwritten by Royal Bank of Scotland, Deutsche Bank, Credit Suisse and Societe Generale. Posted at 11:18 a.m.
Dubai Trouble: Shares in Emaar Properties, the Arab real estate company that’s building the world’s tallest skyscraper in Dubai, sank Wednesday as investors awoke to the company’s exposure to the U.S. subprime crisis. Chief Financial Officer Amit Jain confirmed analyst’s fears on a conference call Tuesday that income from its U.S. operations would damp profits. Emaar bought John Laing Homes, one of the largest homebuilders in the U.S., for $1.05 billion in June last year. Posted 9:40 a.m.
H&R Block Taps Credit Line: H&R Block’s Block Financial Corp. unit withdrew a net of $650 million from its working capital lines of credit to cover capital needs during the credit crunch. The company said it withdrew $200 million on Aug. 16 and an added $850 million on Aug. 20, using the money to pay off the previous loan. The company said in recent weeks “the credit market has become increasingly constrained and unstable,” cutting into the availability and terms of commercial paper, a source of short-term funds for companies. The company said it plans to keep using the working capital lines until commercial paper stability and market pricing returns to “normal levels.” Posted 9:15 a.m.
Low Toll: Toll Brothers Inc. reported a sharp drop quarterly profit, reflecting the difficult market conditions plaguing the nation’s housing market. “We continue to wrestle with the interrelated challenges of softer demand and excess housing supply in most markets,” said Robert Toll, chairman and chief executive. In the three months ended July 31, the luxury home builder posted net of $26.5 million, or 16 cents a share, down 85% from $174.6 million, or $1.07 a share, earned in the third quarter of fiscal 2006. Posted 8:50 a.m.
Accredited Cuts Jobs: Accredited Home Lenders Holding announced plans to sharply curtail operations and cut more than half its staff, amid troubles in the nonprime mortgage industry. The company said that “substantially all” of the retail lending business consisting of 60 retail branch locations and five centralized retail support locations will be closed. The company expects that its total work force will be about 1,000 employees, down from 2,600 employees as of June 30. A day earlier, banking giant HSBC said it will close next year a central Indiana finance office that employs 600 people because of declining mortgage business. It sells mortgages under the HFC and Beneficial brands. Posted 8:40 a.m.
Carlyle Move: Private-equity firm Carlyle Group has been forced to lend money to Carlyle Capital Corp. Ltd., a highly leveraged fund listed in Amsterdam that invests in residential-mortgage-backed securities, to meet margin calls. In a statement, Carlyle Capital said Carlyle Group has extended a $100 million, one-year loan to help it fund itself and that it has already tapped the loan for $10 million.
Tuesday, Aug. 21, 2007
Wilbur Ross Goes Subprime: U.S. financier Wilbur Ross is planning a push into subprime mortgages, in a sign the credit turmoil is opening up opportunities for bargain-hunting investors willing to take risks, the Financial Times reported on its Web site. Ross, who specializes in distressed businesses, told the FT in an interview that the subprime market, which has been ravaged by rising defaults and mounting problems at mortgage lenders, was a new focus for his private equity firm, WL Ross. Posted 5:45 p.m.
First Magnus Files: First Magnus Financial Corp., the closely held Arizona mortgage lender that shut down operations and laid off nearly 6,000 workers last week, today filed for Chapter 11 bankruptcy protection from its creditors. In a filing with the U.S. Bankruptcy Court in Tucson, Ariz., the company listed $812.5 million in liabilities and $942.1 million in assets. It said it has between 25,000 and 50,000 creditors. On its Web site last week, First Magnus blamed “the collapse of the secondary mortgage market” for its decision to shut down. The company made loans throughout the U.S., billing itself as the country’s largest privately held mortgage lender. In 2004, it was on Inc. magazine’s list of the fastest-growing privately held U.S. companies. Posted 4:40 p.m.
Still Frozen: The asset-backed commercial paper market, where highly-rated lenders have gone for their short-term funding needs, is still broken despite the Federal Reserve’s attempt late last week to fix the logjam in this key part of the credit markets. The Fed on Friday cut its discount rate by half-percentage point in an attempt to alleviate the pressure on banks that found their access to the commercial paper market shut off amid a crisis of investor confidence. “Apparently, the market’s worse today than it’s ever been,” said Dominic Konstam, head of interest rate strategy at Credit Suisse. “The big failure to roll HBOS paper in Europe has upset people.” Earlier Tuesday, the U.K.’s biggest lender HBOS PLC said its credit-investment vehicle Grampian will repay maturing asset-backed commercial paper from the bank’s balance sheet rather than tap credit markets. Posted 3:10 p.m.
Lacker Speaks: Despite recent turbulence in financial markets, the Federal Reserve should remain focused on fundamentals of growth and inflation when it assesses whether to change its main policy tool, the federal-funds rate, Federal Reserve Bank of Richmond President Jeffrey Lacker said Tuesday. He also warned, as he has repeatedly over the past year, that inflation remains a risk, though the downturn in housing also poses a risk to economic growth. Mr. Lacker’s comments are the first by a Fed official to address the economic outlook following last week’s surprise reduction in the Fed’s discount rate. Mr. Lacker’s views on the economy are notable because he’s thought to represent the Fed’s “hawkish” wing — those most vigilant on inflation. Mr. Lacker dissented four times last year when he was a voting member of the Fed’s policy committee, each time arguing for higher rates to quell inflation. Mr. Lacker isn’t a voting Fed member this year. Posted 1 p.m.
Capitol Hill Meeting: Sen. Christopher Dodd, the Connecticut Democrat who chairs the Senate Banking Committee and is running for president, summoned Federal Reserve Chairman Bernanke and Treasury Secretary Paulson to Capitol Hill this morning to talk to them about the spreading woes of the housing industry and the turmoil in the credit markets. Posted 11:50 a.m.
New York Fed Lowers Fee: The Federal Reserve Bank of New York said it is lowering the fee it charges as part of lending securities from its holdings, in a move market participants say is another step aimed at improving market liquidity. “Effective immediately” the New York Fed said “the minimum fee rate is decreased” to 0.5% from 1% as part of its lending of securities from the System Open Market Account. “All other program terms remain unchanged,” the New York Fed said. The Fed has long lent securities - Treasurys, agencies and other fixed-income issues - from its SOMA portfolio. The lending program was begun in part to help alleviate shortages of collateral that appear from time to time in what’s called the repo market. Posted 11:50 a.m.
Foreclosures Up: Foreclosure filings rose 9% from June to July and surged 93% over the same period last year, with Nevada, Georgia and Michigan accounting for the highest foreclosure rates nationwide, a research firm said Tuesday. The filings include default notices, auction sale notices and bank repossessions. The figures are the latest measure of the ailing housing market, which has seen defaults and foreclosures soar as financially strapped borrowers have failed to make payments or find buyers. In all, 179,599 foreclosure filings were reported during July, according to RealtyTrac Inc. Posted 9:20 a.m.
Accredited Trade: Accredited Home Lenders Holding Co. said it agreed to trade about $1 billion in loans with an investor at an advance rate in order to reduce the company’s exposure to margin calls. Under the 90-day purchase agreement, the San Diego company said it doesn’t expect the transaction to produce or use any significant liquidity at time of funding. “If the market improves to a rational level, our intention is to repurchase these quality loans by mid-November and sell or securitize them,” Chief Executive James Konrath said. Accredited Home Lenders said it has the ability, but not the obligation, to repurchase all of the loans traded through mid-November at a premium to the advance rate, which is comparable to the advance rates the company is currently receiving from warehouse lenders. Posted 8:55 a.m.
Monday, Aug. 20, 2007
Red at GreenPoint: Capital One Financial Corp. said it plans to shut down its struggling GreenPoint mortgage unit, becoming the latest casualty in the mortgage meltdown. Capital One bought GreenPoint in last year’s $13.2 billion purchase of North Fork Bancorp, of Melville, N.Y. North Fork had earlier paid $6.3 billion for GreenPoint Financial Corp., then a large N.Y. savings-and-loan specializing in mortgages. The unit specialized in so-called non-conforming loans, which do not meet the standards set by Fannie Mae and Freddie Mac, the government-sponsored providers of mortgage funds. GreenPoint specialized in “jumbo” loans above the $417,000 limit and Alt-A loans to home buyers who do not fully document their income or assets. Posted 5 p.m.
SEC Charges Sentinel: The SEC filed civil fraud charges against Sentinel Management Group, an investment adviser whose problems helped roil the markets last week, in a move that could rewrite the history of last week’s market turmoil. The SEC is also seeking a temporary restraining order to freeze the proceeds from Sentinel’s sale of assets to Citadel Investment Group. Posted 5 p.m.
Vacation Lull: The urge to rush off to the beach before Labor Day may have pushed corporate credit markets into a holding pattern. The investment-grade corporate cash bond market, which had opened slightly higher in early New York trading, had flattened out by the afternoon. Most of the action was in the short end of the Treasury market, where government securities were rallying, pushing yields into the cellar. Countrywide Financial and Residential Capital, both of whom have been clobbered by debt investors in recent weeks, got a reprieve as their credit-default swaps eased. Trading in junk bonds was thin, making it difficult to get a read on the market. “For the first time you get the distinct impression that it’s August,” Greg Hopper at the Julius Baer Global High Yield Fund told Dow Jones Newswires. “Last year it felt like August from about July 15.” Posted at 2:42 p.m.
Northern Rock’s MBS Pebble: British mortgage lender Northern Rock sought to ease concerns about its funding by saying that its exposure to U.S. mortgage-backed securities is “minimal,” at less one-quarter of a% of its total assets. The company has been singled out for concern by investors as its gets about three-quarters of its funding from other financial institutions, which have tightened lending terms amid the credit crunch. Northern Rock shares have plunged more than 30% since it issued an earnings warning in June. Posted at 2:05 p.m.
Icahn Deal: WCI Communities Inc. and Carl Icahn have reached an agreement on a new board structure at the Florida home builder as a potential takeover deal remains a possibility. Separately, the firm said it has entered an agreement to amend its credit lines, reducing the size of one line by $150 million, and has received a waiver against a possible default declaration as a result of the proposed board change. Posted at 1:49 p.m.
Deutsche Window: The Financial Times is reporting that people close to the situation have told the newspaper that Deutsche Bank stepped up to discount window after the Fed cut its interest rate for direct loans to banks from 6.25% to 5.75% on Friday. It is unclear how much the bank borrowed, according to the FT’s report. Banks generally are reluctant to tap the discount window as it may be viewed as a sign of weakness, but central bank officials assured Wall Street executives last week that there would be no stigma attached to stepping up to receive such loans. Posted 11:56 a.m.
Thornburg Sales: Thornburg Mortgage, a big provider of prime jumbo mortgages, said this morning that it has sold $20.5 billion in top-rated mortgage backed securities in an effort to boost the company’s liquidity. Thornburg said it plans to resume normal operations over the next two weeks and also said it has significantly reduced its borrowings portfolio. The moves come amid slumping mortgage-securities prices and “simultaneous declines in the value of its hedging instruments,” said Thornburg. The end result was the company being unable to support its borrowings by using its mortgage portfolio as collateral. Posted 10:15 a.m.
Solent Woes: Bloomberg is reporting that Solent Capital Partners LLP, a London-based hedge-fund manager, may be forced to sell assets in a mortgage-backed securities unit after the rout in credit markets hampered its ability to repay debt. Bloomberg reported that Solent’s Mainsail II Ltd. unit is drawing on its emergency finance after failing to raise short-term debt in the commercial paper market, citing a statement on Regulatory News Service. Bloomberg said Mainsail is one of $6.7 billion of collateralized- debt obligations managed by Solent, according to Fitch Ratings. Posted 8:45 a.m.
Canadian Moves: National Bank of Canada has agreed to buy nearly two billion Canadian dollars (US$1.88 billion) in asset-backed commercial paper held by the firms’ mutual funds and individual and corporate investors to eliminate its customers’ exposure to that market. Posted 8:35 a.m.
Layoffs: Countrywide Financial Corp., reducing costs as part of its effort to weather a credit crunch, has begun laying off employees involved in originating loans, according to an internal email. The layoffs occurred in the company’s Full Spectrum Lending unit, which handles many home mortgages in a category known as Alt-A, or mortgages between prime and subprime that often involve borrowers who don’t document their income. Posted 8:30 a.m.
Friday, Aug. 17, 2007
Stocks Jump: Stocks surged Friday, encouraged by the Fed’s move this morning. At 4 p.m., the Dow Jones Industrial Average jumped 233.30 to 13079.08. The S&P 500 gained 34.67 to 1445.94, and the Nasdaq Composite Index was up 53.96 to 2505.03. Updated 5 p.m.
Radian Draws on Credit Lines: Radian Group, one of the nation’s largest mortgage insurers, has drawn down half its credit line and faces shareholder lawsuits accusing the company of securities violations. Radian, facing massive losses in subprime investments, said it’s getting $200 million from a $400 million unsecured revolving credit facility expiring in 2011, according to an SEC filing late Thursday. Radian said it doesn’t need the funds now, but given volatile market conditions, it decided to tap the credit line for “greater financial flexibility and adequate liquidity” in the long run. Posted 4:20 p.m.
Dodd Attacks: Senate Banking Committee Chairman Christopher Dodd (D., Conn.) on Friday blasted the Bush administration’s handling of the liquidity problems in credit markets over the last week. Dodd also challenged the authority of James Lockhart, director of the Office of Federal Housing Enterprise Oversight, who announced last week that he would not permit Fannie Mae and Freddie Mac to grow their portfolios despite liquidity pressures on mortgage lenders. Posted 1:45 p.m.
White House Briefing: White House spokesman Gordon Johndroe, briefing reporters in Crawford, Texas, said Treasury Secretary Henry Paulson called Bush Thursday night to update the president on the economy and financial markets. Posted 1:45 p.m.
Poole’s Absence: St. Louis Fed President William Poole, who told an interviewer Wednesday that he saw no need for Fed action amid the current market turmoil, wasn’t part of Thursday night’s decision to lower the discount rate. Dallas Fed President Richard Fisher voted in his place. A spokesman for Poole said the call conflicted with a long-scheduled dinner meeting at the University of Arkansas. “President Poole was concerned that failure to appear at the dinner meeting might have been noted, which could have led to speculation about the possibility that the FOMC was holding an unscheduled meeting,” the spokesman said. Posted 12:20 p.m.
Novastar Layoffs: NovaStar Financial, a residential mortgage lender and portfolio investor, announced plans to cut its work by about 500 people, or 37%. NovaStar said it continues to meet all loan commitments, and its servicing and portfolio management organizations aren’t affected by the reduction. The company said David A. Pazgan, who has led the Company’s wholesale lending organization since 2004, will leave the company as part of the work-force reduction. Posted 12:15 p.m.
Penson’s Complaint: Penson GHCO, the futures clearing subsidiary of Penson Worldwide, said Friday that Sentinel Management Group sold assets it manages to Citadel Investments Group with “no notice, without our approval and in breach of our contract with Sentinel.” Penson said it plans to pursue “all legal remedies.” Sentinel recently announced a temporary halt in redemptions in its investment funds due to market liquidity issues. Penson said it believes the sale of the portfolio, which consisted of short-term AA or better corporate bonds or U.S. government agency bonds, occurred at discounts of up to 30% from market prices. Posted 11:30 a.m.
No Comment From White House: The White House declined to comment on the Fed’s decision to cut the discount rate Friday, but a spokesman repeated the administration’s confidence in the central bank. “We have full confidence in the Federal Reserve and respect their independence,” White House spokesman Tony Fratto said. Posted 9:25 a.m.
Fed Funds Move Still Expected: U.S. interest rate futures prices were mixed in volatile trading early Friday, but continued to prices in full expectations that the Fed will cut the federal funds rate a full percentage point to 4.25% this year, after the Fed implemented a 50 basis point cut to the discount rate. Posted 9 a.m.
Discount Rate Cut: The Federal Reserve announced early Friday that it has approved a half-percentage point cut in its discount rate on loans to banks. The action was the most dramatic effort yet by the central bank to restore calm to global financial markets which have been roiled in the past week by a widening credit crisis. The decision means that the discount rate, the interest rate that the Fed charges to make direct loans to banks will be lowered to 5.75 percent, down from 6.25%. The Fed didn’t change its target for the more important federal funds rate, which has remained at 5.25% for more than a year. Posted 9 a.m.
S&P Cut: Standard & Poor’s cut its investment rating on a small portion of U.S. residential mortgage-backed securities that are backed by near-prime loans. The securities being cut by S&P are backed by first mortgages issued from October 2005 through the end of 2006. They had an original total balance of about $660 million and represented 0.13% of the nearly $455.4 billion in residential MBS backed by Alt-A loans that S&P rated in those 15 months. At the same time, the firm affirmed the ratings on 82 other classes of MBS that S&P had been reviewing for possible downgrade, as well as all other previously rated Alt-A classes. Alt-A loans are a category between prime and subprime that often involves borrowers who don’t fully document their income or assets, or those buying investment properties. Posted 8:05 a.m.
Questions for BNP: French Finance Minister Christine Lagarde said Friday she will ask the chief executive of BNP Paribas to explain how the French bank manages the risk of subprime loans. BNP sparked a steep sell-off in global markets last week by announcing that it was freezing billions of dollars in assets in three mutual funds, citing the declining value of securities linked to high-risk mortgages taken out by U.S. borrowers. Lagarde, speaking on RTL radio, said she would speak with BNP CEO Baudouin Prot, and would “of course ask for explanations from Mr. Prot about the way they consciously managed this circumstance.”
Thursday, Aug. 16, 2007
U.S. Rebound: After sharp early losses following deep declines overseas, the U.S. stock market ended the day little changed, amid recoveries in banks and brokers. Bear Stearns led the rebound, surging 13% after an analyst said the company may sell a big stake to Chinese banks. J.P. Morgan Chase added 5.7% and Lehman Brothers gained 6.2%. The Dow industrials closed the day down 15.69 points. Posted 6 p.m.
E*Trade’s Holdings: E-Trade Financial, whose shares have dropped sharply in the past month, disclosed more information on its mortgage holdings late Thursday to try to calm investor concerns. The discount broker also said that it’s so far seen no material changes in the availability, pricing or margin on its wholesale funding sources, including repurchase agreements. The company’s $15.7 billion first-lien mortgage portfolio contains home loans with high credit scores and low loan-to-value ratios, plus private mortgage insurance, E-Trade said. The company noted that $9.2 billion, or 74%, of its home-equity portfolio is tied to loan to borrowers with credit scores of at least 700. Posted 5:45 p.m.
First Magnus Ends Lending: First Magnus Financial Corp., which Bloomberg reports is the second-largest privately held U.S. mortgage lender, has stopped funding new mortgages. A notice on its Web site blamed the collapse of the secondary mortgage market. Bloomberg said that First Magnus was the 16th-largest U.S. home lender in the first half of this year, making $17.1 billion in loans, according to newsletter Inside Mortgage Finance. Posted 1:35 p.m.
Moody’s Sees Hedge Fund Failure: Moody’s Investors Service warned Thursday that the credit crunch roiling global markets has the potential to cause the collapse of a major hedge fund that could further disrupt markets, akin to the Long Term Capital Management collapse. Moody’s doesn’t have a specific fund in mind. But it believes that as investors try to unload illiquid investments such as collateralized debt obligations, hedge funds that are unable to exit their positions could run into trouble, Chris Mahoney, vice chairman of Moody’s, said during a conference call with investors. Mahoney said the risk of such hedge fund failures will exist for the next three to six months. Updated 1:20 p.m.
Job Losses: National City Corp. will be cutting jobs in its loan operations as the bank merges its mortgage and home-equity lending businesses. National City Home Equity last week suspended approvals for home-equity loans and lines of credit, citing the roiling credit markets. The decision didn’t impact the loan-approval process at National City’s banking operations. The home equity business, which originates loans through third parties, will be merged into National City Mortgage. That unit “intends to resume home equity originations as market conditions warrant.” Updated 1:20 p.m.
Downgrades for Lenders: Ratings agencies weighed in on two mortgage giants Thursday, taking an ax to their ratings amid a credit crisis that’s limiting their access to sources of funding for their operations. Fitch Ratings cut Residential Capital LLC, the mortgage lending unit of GMAC Financial Services, two notches to junk. Fitch and Moody’s Investors Service cut Countrywide Financial Corp.’s ratings, yet the nation’s largest home lender still retained its investment-grade status. Posted at 12:05 p.m.
Shedding Commercial Paper: There was a sizable drop in total outstanding commercial paper in the week to Wednesday, Federal Reserve data showed, a sign that the recent spike in short-term rates is forcing issuers to shift away from a market that has been at the heart of the recent credit crunch. The drop in outstanding holdings was particularly sharp in overseas financial institutions, whose exposure to the U.S. subprime problems has hit the headlines recently. The Fed data, released Thursday, showed that the total outstanding amount of commercial paper fell more than $90 billion on a seasonally-adjusted basis to $2.132 trillion as of Wednesday, from $2.224 trillion a week earlier, which was just short of the record outstanding in total commercial paper hit last month. In an e-mail note Tony Crescenzi, chief bond market strategist at Miller Tabak & Co., said the figures validated “the idea that issuers are being forced to make orderly exits from the commercial paper markets and obtain financing elsewhere.” Post at 12:00 p.m.
More on Poole: St. Louis Federal Reserve President William Poole told Bloomberg TV late Wednesday that he sees no rate move before the next meeting. Asked about the remarks, Fed spokesman Michelle Smith told WSJ.com Thursday: “President Poole is speaking for himself and not for the committee.” Mr. Poole, 70, a former economic professor at Brown University known for his candid commentary and his affiliation with economics of the monetary school, has been president of the St. Louis Fed since 1998 and is planning to retire next year. He may not be the best weathervane: Less than 10 days before the Fed made a surprise half-percentage-point cut in April 2001, Mr. Poole said that “there are compelling times when quick action is necessary, but this is not one of them.” Posted at 11:30 a.m.
Fed Funds: The New York Fed, which carries out the central bank’s market operation, said Thursday it would step in with a 14-day repurchase agreement worth $5 billion. On Wednesday, the Fed accepted a “repo’’ of $7 billion, in which it buys that amount in securities from dealers, who then deposit the money into commercial banks. Central banks around the world have been supplying billions of funds to banks in the past week to make cash available for lending and keep interest rates from rising amid signs that credit was drying up. Posted at 9 a.m.
Housing Stops: Home builders slowed groundbreakings during July, pulling construction to its lowest rate in 10 years. Housing starts decreased by 6.1% to a seasonally adjusted 1.381 million annual rate, after rising 2.1% in June to 1.470 million, the Commerce Department said this morning. Originally, Commerce reported June starts 2.3% higher at 1.467 million. July starts were lower than Wall Street had predicted. The median forecast of 22 economists surveyed by Dow Jones Newswires was a 4.6% drop to a 1.400 million annual rate. It was the lowest level of starts since 1.355 million in January 1997. Year-to-year, housing starts were 20.9% below the level in July 2006. Posted at 8:45 a.m.
French Appeal: French President Nicolas Sarkozy has urged the Group of Seven industrial countries to better monitor international financial markets as worries of a worldwide credit crunch deepen. Sarkozy’s appeal, in a letter to German Chancellor Angela Merkel, was made public Thursday as France’s CAC-40 index dropped to its lowest level this year. Merkel is the current president of the G-7. Also Thursday, a European Commission official said the Commission will launch an investigation into how successfully credit rating agencies gauge credit risk that might lead to new European Union regulation. Posted at 8:20 a.m.
Countrywide Crunch: Countrywide Financial, the nation’s largest mortgage lender, said Thursday it had to draw on an $11.5 billion credit line amid a crisis in liquidity. Countrywide also said it will accelerate its plans to migrate its mortgage production operations into its banking operations. Posted 7:50 a.m.
KfW Makes Provision for IKB: German state development bank KfW has made a provision of €2.5 billion for possible exposure to losses by German mortgage bank IKB Deutsche Industriebank, according to a filing with the SEC. IKB was the subject of a rescue package by 38% majority stakeholder KfW at the end of July after acknowledging it faced potential losses stemming from the U.S. subprime market. Posted at 7:30 a.m.
France’s Benchmark Index Hits Year-Low: The French CAC-40 Index dropped to 5277.77, its lowest level so far in 2007. All 40 components in France’s benchmark index were in the red at midday. Posted at 6:15 a.m.
Rams’s Woes: Australian non-bank mortgage lender RAMS Home Loans Group Ltd. said it failed to refinance 6.17 billion Australian dollars (US$5.06 billion) worth of debt because of low liquidity in a segment of the U.S. commercial paper market. RAMS’s announcement sent its shares down as much as 59% in Sydney. Posted at 5:30 a.m.
Paulson Speaks: In an interview with The Wall Street Journal, Treasury Secretary Paulson said market turmoil “will extract a penalty” on U.S. growth but expressed confidence that the economy will avoid a recession. Posted at midnight
Wednesday, Aug. 15, 2007
No Fed Move Soon? The Federal Reserve will continue to do what is necessary to keep the market stable, but there is so far no call for a decision on interest rates ahead of the next policy-setting meeting, St. Louis Federal Reserve President William Poole said. In an interview with Bloomberg Television, Poole - who is currently a voting member on the Federal Reserve’s rate-setting committee - said the central bank “will continue to do whatever’s needed to keep the market stabilized.” In remarks that may come as a disappointment for market players looking for a swift rate cut from the Fed to stave off a possible credit crunch, Poole said the bank didn’t intend to take a decision before its Sept. 18 meeting unless there is some sort of “calamity.” Posted 6:15 p.m.
Margin Calls: Anworth Mortgage Asset disclosed in an SEC filing that its Belvedere Secured unit received a notice of default from Deutsche Bank Securities as a result of a failure to satisfy a margin call made by Deutsche Bank. It previously announced notices of default from WaMu Capital Corp and Barclays Capital. The total amount outstanding under its agreements is about $139 million. Anworth is a REIT that invests in mortgage assets. Posted 5:30 p.m.
Market Update: The Dow industrials are down about 130 points with 20 minutes to go in trading. Among individual stocks, Countrywide was down about 15%. The benchmark 10-year Treasury note closed up 7/32 at 100 12/32 to yield 4.704%. Investors “really aren’t looking at the data,” Tom di Galoma, head of Treasurys trading for Jefferies & Co., told Marketwatch.com. “At this point, the environment is all about risk reduction.” Posted 3:45 p.m.
Genworth Downplays Exposure: Insurance company Genworth Financial Inc. said Wednesday its investment exposure to securities backed by subprime mortgages is limited and that its U.S. mortgage insurance business has experienced below-industry losses and is focused on fixed-rate prime loans. The Richmond company said in a presentation for investors posted on its Web site that securities backed by subprime and Alt-A mortgages make up just 5% of its $72.6 billion in invested assets. Compared with an industry average of 4.7% of loans currently delinquent to U.S. lenders, Genworth said its rate at the end of June was 2.9%. Rival mortgage insurer United Guaranty, a unit of AIG, reported a delinquency rate of 3.98% at the end of June in its own presentation to investors earlier this month. The news helped boost Genworth shares, which were up 4.1% at $28.99 in recent trading. The shares are still down 22% from their high for the year of $37.16, set in late February. Posted at 12:50 p.m.
No Bankruptcy for Aegis? Houston-based Aegis Mortgage Corp. may be able to wrap up its affairs without bankruptcy financing, a lawyer for the dissolving lender said at the first hearing in its Chapter 11 case. Laura Davis Jones said continuing loan servicing operations and possible sales of Aegis’s portfolio of mortgages could provide enough cash to cushion the company’s collapse in Chapter 11. Aegis, another in a long list of failed mortgage lenders liquidating under court protection, filed for bankruptcy in Delaware Monday with the hope of avoiding a fire-sale. Posted at 12:10 p.m.
Jumbo Hope: Thornburg Mortgage President Larry Goldstone Wednesday said that the lender is still having trouble raising financing but hopes to be back to “business as usual” by next week. “There are a variety of strategies that we’ve been working very hard on the last couple of weeks to stabilize our liquidity position,” Goldstone said in an interview on CNBC. “I think by next week we’re going to be on the other side of this.” The comments come after the REIT specializing in high-quality mortgages said Tuesday that it is delaying a dividend payment and considering asset sales as it struggles with a liquidity squeeze that has been hurting the home-loan industry. Posted 11:45 a.m.
Housing Look: The National Association of Realtors, in releasing analysis of second-quarter housing data this morning, tried to find reasons for some optimism. Lawrence Yun, NAR senior economist, said “recent mortgage disruptions will hold back sales temporarily, but the fundamental momentum clearly suggests stabilizing price trends in many local markets.” Posted at 10:55
Scottish Re’s Exposure: Reinsurer Scottish Re reported investments with subprime exposure of about $2.1 billion, and of Alt-A about $1B, vs. shareholders’ equity of about $1.1 billion. Oppenheimer called the exposure “significant,” and noted that subprime, Alt-A portfolios have seen unrealized losses of about 6.6% of book value. Firm maintains neutral rating, forward estimates. Posted at 10:45 a.m.
Still No Floor for Builders: Investors are still looking for a floor in residential builders’ stocks. After staging a recovery late last week, shares have traded lower so far this week as fears have swirled around the mortgage markets. Lenders are tightening their standards, which is making it harder to qualify for loans, resulting in even less demand for homes. Some analysts think the mortgage and housing markets are caught in a “downward spiral” in which negative events feed off each other. — John Spence, MarketWatch. Posted at 10:10 a.m.
Nay to Alt-A: Real estate investment trust Impac Mortgage Holdings said it has suspended funding on so-called Alt-A loans due to liquidity problems in the mortgage markets. Alt-A mortgages are offered to more creditworthy borrowers than subprime loans, but they often have adjustable rates and sometimes require little or no documentation. Delinquencies have risen in Alt-A mortgages and ratings agencies are downgrading securities backed by the loans. Posted at 9:55 a.m.
Countrywide Cut: Merrill Lynch cut its ratings on Countrywide — the largest U.S. home lender — to “sell” from “buy,” citing concerns that liquidity in the mortgage sector could further erode the value of the company’s franchise. The broker told clients it fears that the acceleration of margin calls and forced asset sales in the capital markets could lead to more problems in Countrywide’s mortgage operations, and the analysts raised the possibility of bankruptcy should conditions worsen substantially. The annual cost of protecting a notional amount of $10 million of the mortgage lender’s bonds against a possible default for five years jumped Wednesday to $434,500 from $368,500 a day earlier, according to CMA DataVision, a London-based credit information specialist. Earlier this month, the same credit protection cost about $172,000, according to credit default swaps levels. Posted at 9:50 a.m.
KKR Financial Tumbles: Shares of KKR Financial Holdings, a publicly traded affiliate of buyout giant Kohlberg Kravis Roberts, tumbled Wednesday. The company said it sold about $5.1 billion of residential-mortgage loans, prompting a loss of about $40 million. After the sale, KKR Financial owns about $5.8 billion of mortgage loans, mainly in the form of residential-mortgage-backed securities. The company also said that “Due to the unprecedented disruption in the residential mortgage and global commercial paper markets, the company has initiated discussions with the investors in its asset-backed secured liquidity note facilities regarding various alternatives to resolve potential funding disruptions resulting from the current market environment.” In January, KKR Financial said it would divest itself of its residential mortgage portfolio. Posted at 9:35 a.m.
Hope for Accredited Deal: Lone Star Funds extended the deadline on its proposed $400 million acquisition of Accredited Home Lenders Holding Co. by two weeks, causing the subprime-mortgage lender’s shares to jump in premarket trading. Nearly all of Accredited’s shares have been tendered in favor of the deal. Posted at 8:45 a.m.
If I want the fancy stuff in the kitchen, I can add it for a lot less. Why pay twice as much for a house when adding stuff like quartz kitchen counters can be done for under $10K? A fancy stainless steel Jenn Aire cook top can be had for under $2k. I can pay cash for that and not finance it over 30 years....paying twice as much in the end.
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