Refinance Free Credit

The well-known UCLA Anderson Forecast released its first quarterly report for 2008 on Tuesday, and said it remains confident that the national economy was not in a recession through January. The group said it sees weak growth — but, noteably, no recession — during the remainder of 2008, it said in a press statement.

“Our no-recession forecast remains nervously intact,” wrote Anderson Forecast director Edward Leamer, in the group’s latest report. “We see a lot of problems in the first half of 2008 as housing remains a drag on GDP growth and weakness in personal consumption contributes as well. We expect one quarter of negative GDP growth.”

“Until I see evidence of a decline in spending by consumers and businesses because of credit problems, I am going to believe that this is just another symptom of ‘recession depression,’” he said. “Main Street is doing well, even as Wall Street suffers.”

Senior economist David Shulman suggests the U.S. economy has “become enveloped in an ever widening and deepening credit recession, as distinguished from an economic recession, that is working to constrict borrowing to all but the most credit worthy borrowers.” He estimated credit losses at $400 million, as a result.

Partly because the UCLA researchers are holding by the “no recession” call, they likewise are not forecasting a recession for California. “There has never been a recession in California without a national recession,” Ryan Ratclif and Jerry Nickelsburg, both UCLA economists, noted.

For more details, visit http://www.uclaforecast.com.

Amid growing concern regarding economic stability both here in the U.S. and abroad, the Federal Reserve on Tuesday announced a series of coordinated actions deisgned to pump up a financial market that has been roiled as of late by deleveraging, concerns over inflation, and fears that the U.S. housing slump will get significantly worse.

Most pertinent to the mortgage market, the Fed said in a statement that it would pump $200 billion into the financial markets via a new Term Securities Lending Facility. The TSLF will alow banks to gain access to funds by posting collateral in the form of federal agency debt, mortgage-backed securities issued by Fannie Mae and Freddie Mac, as well as AAA-rated private-label residential MBS.

The new program is in some ways an analog to the Term Auction Facility that the Fed has been running for the past few months, which was recently bolstered to offer $50 billion in funds this past week.

News of the new Lending Facility immediately led stocks upward, with the Dow Jones Industrial Average trading up 1.58 percent to 11,925 in mid-day trading. Financials in particular rebounded, with Countrywide Financial Corp. rising nearly 10 percent.

Via the Associated Press:

“The big problem has been the financials, and this helps supply money directly to the banks and may take some of the need for aggressive rate cutting off the table,” said Peter Dunay, chief investment strategist at Meridian Equity Partners. “The Fed is basically going to take the bad loans off the banks’ books, and the market seems to be loving that idea.”

There should be some concern about the Fed taking on AAA-rated residential private-party RMBS via this new facility, however, given earlier coverage here on HW suggesting that these assets may not deserve the AAA rating they currently hold.

In addition to the new Lending Facility, the Fed also said it had authorized an increase in existing currency swaps with the European Central Bank and the Swiss National Bank.

Disclosure: The author held a long position in CFC when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

A groundbreaking report from Mark Pittman at Bloomberg argues that despite all of the downgrades that have hit subprime residential mortgage-backed securities in the past year, the major rating agencies have yet to downgrade the class of RMBS that matters most: AAA-rated bonds.

click for interactive graphic

All of which could mean that while the subprime mortgage crisis may have become past-tense in most press reports, we still have a very long way down to go.

The interactive graphic linked on the right provides a detailed look at key securities in the ABX, and Bloomberg’s assessment of where the securities should be rated using existing agency criteria.

From the Bloomberg report:

None of the 80 AAA securities in ABX indexes that track subprime bonds meet the criteria S&P had even before it toughened ratings standards in February, according to data compiled by Bloomberg. A bond sold by Deutsche Bank AG in May 2006 is AAA at both companies even though 43 percent of the underlying mortgages are delinquent.

Sticking to the rules would strip at least $120 billion in bonds of their AAA status, extending the pain of a mortgage crisis that’s triggered $188 billion in writedowns for the world’s largest financial firms.

… “The fact that they’ve kept those ratings where they are is laughable,” said Kyle Bass, chief executive officer of Hayman Capital Partners, a Dallas-based hedge fund that made $500 million last year betting lower-rated subprime-mortgage bonds would decline in value. “Downgrades of AAA and AA bonds are imminent, and they’re going to be significant.”

Look out below?
Deutsche Bank estiamtes that $650 billion on subprime mortgage bonds are yet outstanding, and that 75 percent — or nearly $490 million — were rated AAA at issuance.

There is certainly a reason for secondary market participants to want to hold off on downgrading AAA-rated securities, if that’s indeed what is taking place. Downgrades to the highest rated investment-grade securities affect that largest dollar amount, for one thing. For another, downgrades would force banks to write-down the value of their holdings, which would in turn likely force increased capital requirements onto banks at time when capital is at an absolute premium in the financial services sector.

Worse, a slew of downgrades could force holders to sell — and we’ve already seen what sort of pandemonium that can cause in the capital markets.

For their part, the rating agencies say they aren’t holding off on downgrades. Per Bloomberg, again:

“We continue to monitor these securities, have placed many of them on CreditWatch negative, and will take additional action when, in our judgment, a rating action is warranted,” said S&P spokesman Chris Atkins. “We do not forbear or refrain from taking action for anyone else.”

Interestingly, Fitch Ratings — the third-largest rating agency — has become much more aggressive as of late in downgrading AAA-rated RMBS bonds.

Housing Wire has covered numerous of Fitch’s recent downgrades, and sources suggest that Fitch has realized that it can move closer to market dominance by being more aggressive on its marks than its two primary competitors.

The Office of Federal Housing Enterprise and Oversight said Tuesday that both Fannie Mae and Freddie Mac were classified as “adequately capitalized” during the fourth quarter of 2007.

Fannie Mae had a 9.3 percent surplus above an OFHEO-directed capital requirement, director James Lockhart said in a press statement, while Freddie Mac posted a 10.0 percent surplus. OFHEO requires each GSE to maintain a capital level 30 percent above the statutory minumum as part of a 2005 settlement over charges of accounting errors and earnings manipulation at both firms.

Both GSE surplus percentages reflect significant increases over the depressed third quarter results, primarily due to the issuances of significant preferred stock during the fourth quarter to offset continuing market and credit-related losses.

Freddie Mac’s capital surplus had fallen below the OFHEO-directed requirement during the third quarter of last year, before the GSE boosted its capital base with a $6 billion preferred stock issuance that settled in December. “This event resulted in supervisory discussions re-emphasizing the importance of maintaining compliance,” Lockhart said, “especially in light of the market volatility.”

OFHEO recently lifted portfolio growth caps at each GSE, allowing each company to grow both its loan and guaranteed MBS portfolios without restriction — at least, beyond those imposed by the 30-percent OFHEO-directed capital requirement.

But capital restrictions at Fannie and Freddie appear set to loosen as well. The Federal regulator has said it will consider lifting the consent order imposing the capital requirements on each GSE in the months ahead, although it expects such a decrease in capital requirements to be gradual.

“The approach and timing of this decrease will also include consideration of the financial condition of the company, its overall risk profile, and current market conditions,” said Lockhart.

For more information, visit http://www.ofheo.gov.

IndyMac Bancorp, Inc. said Tuesday morning that “panic market conditions” surrounding mortgages have turned the capital markets onto their head, and that as a result the thrift would likely miss its first quarter earnings guidance. The bank had originally forecast a net loss of $38 million for the quarter in an investor presentation on February 12.

In a filing with the Securities and Exchange Commission, IndyMac noted that “spreads on everything” had reached “near all-time historic levels,” and that the Pasadena-based thrift could not estimate the effect of market turmoil on its MBS portfolio.

“Spreads between Treasuries and other instruments, in particular, non-GSE mortgage assets, are difficult to ascertain, given the fact that there are virtually no new non-GSE mortgage securities issuances and the only resale activity is a handful of distressed sales,” the company said in its filing. “As a result, the financial impact of this spread widening on Indymac is difficult to estimate at this time, but it is expected to have a negative effect on the value of IMB’s MBS portfolio.”

Seventeen percent of IndyMac’s MBS portfolio is classifed as “trading” for accounting purposes, which means that write-downs to this portion of the portfolio will directly impact earnings for the quarter.

The thrift said 86 percent of its total MBS portfolio was comprised of Alt-A-backed securities; this securities class, in particular, has been roiled in the past week as rumors that UBS AG dumped more than $24 billion of investment-grade Alt-A RMBS earlier this month.

For more information, visit http://www.indymac.com.

Disclosure: The author held no positions in IMB when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Despite reports of emerging trouble in the CRE market recently, a report released Monday by the Mortgage Bankers Association found that delinquency rates for commercial/multifamily properties were at or near record lows to end 2007.

Many media reports have suggested recently that commercial real estate is feeling the pinch of a slowing economy, and data is beginning to suggest this may be the case. But — at least so far — market unrest has not yet translated into increased delinquencies.

Fourth quarter delinquency rates for four of the five largest investor groups – commercial mortgage-backed securities (CMBS), life companies, Fannie Mae and Freddie Mac – remained at or near historically low levels, the MBA said. For the fifth group, FDIC-insured commercial banks and thrifts, delinquency rates were lower at year-end than during 5 of the previous 11 years, and 10 of the previous sixteen.

“This is an important new analysis that helps cut through much of the recent ‘noise’ on commercial real estate finance,” said Steve Graves, COO of Principal Real Estate Investors and chair of the MBA’s Commercial Board of Governors. “Despite a great deal of attention being paid to economic uncertainty, it is reassuring to know that the performance of commercial and multifamily mortgage loans and bonds has remained so fundamentally sound.”

CMBS delinquency rates at year-end 2007, for example, were lower than those at year-end of nine of the previous 10 years. Fannie Mae and Freddie Mac finished the year with a rate equal to or lower than 10 of the previous 11 years, the MBA reported.

Each investor group tracks delinquencies in its own way, meaning delinquency rates are not comparable from one group to another. Based on the unpaid principal balance of loans (UPB), delinquency rates for each group at the end of the fourth quarter were as follows:

• CMBS: 0.40 percent (30+ days delinquent or in REO)
• Life company portfolios: 0.01 percent (60+days delinquent)
• Fannie Mae: 0.08 percent (60 or more days delinquent)
• Freddie Mac: 0.02 percent (60 or more days delinquent)
• Banks and thrifts: 0.80 percent (90 or more days delinquent or in non-accrual)

The full study is available by clicking here. For more information, visit http://www.mortgagebankers.org.

Gun-slinging New York governor has been implicated in a prostitution ring in New York. The holier-than-now corporate crusader who made a name for himself by insisting that the highest ethics be enforced in business and government. I’m sitting in La Guardia airport looking for the right word - found it - hypocrite.

From the New York Times story on Eliot Spitzer’s involvement in a prostitution ring:

Gov. Eliot Spitzer, who gained national prominence relentlessly pursuing Wall Street wrongdoing, has been caught on a federal wiretap arranging to meet with a high-priced prostitute at a Washington hotel last month, according to a law enforcement official and a person briefed on the investigation.

 

The wiretap captured a man identified as Client 9 on a telephone call confirming plans to have a woman travel from New York to Washington, where he had reserved a hotel room, according to an affidavit filed in federal court in Manhattan. The person briefed on the case and the law enforcement official identified Mr. Spitzer as Client 9.“I have acted in a way that violates my obligation to my family and violates my or any sense of right or wrong,” said Mr. Spitzer, who appeared with his wife Silda at his Manhattan office. “I apologize first and most importantly to my family. I apologize to the public to whom I promised better.”

“I have disappointed and failed to live up to the standard I expected of myself. I must now dedicate some time to regain the trust of my family.”

Hang it up buddy.

Hat tip to reader Dan for the news as Thornburg works to resolve outstanding margin call issues (all $610 million worth) to resume funding. All loans are suspended with Thornburg until the margin call issues are resolved and the company’s access to credit facilities is restored. The company anticipated this happening later in the week, but cannot guarantee any firm date. If you have a loan with Thornburg this is for you:

With this message, it is our intent to update our valued customers on the progress we are making as well as provide you with an estimate of our expectations as to the resumption of funding the backlog of loans that are in the queue for funding/purchase.

As previously noted by Larry Goldstone, “Our portfolio of mortgage-backed securities has exhibited exceptional credit performance and are comprised of loans that are among the most solid in the industry. Quite simply, the panic that has gripped the mortgage financing market is irrational and has no basis in investment reality”. The TMA executive team is working relentlessly to meet its outstanding obligations, stabilize the lending platform and increase its liquidity position.

The following events will give you an idea of the challenges:

• Since December 31, 2007, TMA has received $1.777 billion in margin calls on a portion (35%) of our portfolio that is financed with short-term financing. TMA has satisfied $1.167 billion of those calls leaving $610 million outstanding.
• TMA has entered into a temporary syndicate agreement with the counterparties effectively freezing these calls for a limited period of time allowing TMA an ability to pursue financial solutions.
• On March 3rd of 2008, TMA did complete a new securitization in the amount of $992 million utilizing collateralized mortgage debt (permanent financing not subject to margin calls).
• On March 7th, TMA announced that due to the complication of outstanding margin calls, our accounting firm (KPMG) required that TMA restate 2007 earnings thus necessitating a revised 10k.
• Due to our need to take a conservative approach and preserve cash and capital, funding delays did occur and, beginning on Friday February 29th, TMA has not funded any loans.

TMA is working to meet all of the remaining margin calls within a timeframe acceptable to its lenders through a combination of selling select assets, issuing collateralized mortgage debt and raising additional debt or equity capital.

Once the outstanding margin calls have been met and as warehouse lines are reopened for new fundings, we will be prepared to resume funding the backlog. It is our expectation that this may occur before the end of this week. However, as this is a complicated and time consuming process, additional delays may occur which could cause the fundings resumption to be delayed further. We will provide you with regular status updates on our progress.

We thank you for your patience during what has become a difficult time in our industry. You can be assured that we are doing everything within our abilities to get beyond this current crisis.