Monday, December 24, 2007

Mortgage market roundup

(Housing Wire) As the holiday season is here in full swing, I want to take a quick minute to wish each reader a very joyous season; I know it’s been a tough year for some, a record year for others — whichever camp you’re in, I hope you can find time to spend with friends and family.

Barclays throws out $700 billion: In a happy little story published by the UK’s Telegraph, a number of talking heads say that the current crisis facing the mortgage industry (and beyond) may make 1929 look a walk in the park. Buried at the end of the article — I can only presume because the editors at the Tele were too afraid to push it to the intro graph — was this gem:

Goldman Sachs caused shock last month when it predicted that total crunch losses would reach $500bn, leading to a $2 trillion contraction in lending as bank multiples kick into reverse. This already seems humdrum.

“Our counterparties are telling us that losses may reach $700bn,” says Rob McAdie, head of credit at Barclays Capital.

Over at the Calculated Risk blog, CR reiterates his position that losses are likely to even surpass $1 trillion when all is said in done — dwarfing the $160 billion in losses associated with the S&L crisis. Ouch.

More holiday cheer: The Associated Press decided to start the Christmas vacation off with a bang, apparently, using the following lead:

Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.

What’s “alarming” here? The news agency’s own research found that 30+ day delinquencies at 17 large issuers jumped 26 percent versus year-ago numbers to $17.3 billion — while defaults on credit card debt rose 18 percent to $961 million.

That sound you hear? It might be the other shoe dropping, especially if we’re to believe that consumers are walking away from homes before they default under outstanding credit card debt.

Modification activity up: A Moody’s report (subscription req’d) from earlier in the week found that through the end of September, on average, 3.5 percent of loans that reset in the first eight months of 2007 had been modified versus an August survey that had found only about 1 percent. That’s good.

The same report noted that servicers are still ramping up staff to handle loan modifications, which is in part what’s keeping modification activity so low. That’s bad. Especially when you consider the number of modifications about to result from the rate freeze program put into place.

It’s also a reminder that loan modifications are difficult, often time consuming, and require significant training and resources to do well — which is why you’ll often see higher percentages of loan workouts versus loan modifications coming out of a typical loss mitigation outfit. It’s also why the rate freeze program recently touted by the Treasury Department will strain servicers’ operations — it’s possible you’ll see some negative moves from the rating agencies on servicer ratings in the next quarter, as a result.

Transparency: Gretchen Morgenson over at the NY Times — who I’ve skewered on this blog at least once for an uninformed take on mortgage banking — had a very interesting story about a couple of guys trying to bring transparency to the buy-side of the industry. Their company,, provides an estimate of average closing costs in an effort help consumers weed out junk fees charged by brokers.

I’d be interested to see if HW readers — those on the consumer-facing side, at least — think this might have legs.

MBIA’s weak defense: After seeing its stock bludgeoned amid a revelation of CDO-squared holdings (see this post for more information), MBIA issued a defense that wasn’t, saying it’s $30.6 billion in CDO exposure had been previously disclosed.

Which is true, of course. What hadn’t been disclosed was that within that $30.6 billion was an $8.1 billion segment, the majority of which represent CDOs-squared. The revelation never was about CDO exposure — it was about the nature of that exposure, and the reputational hit a company like MBIA suffered by not fully disclosing the risks to its business. The world’s largest financial guarantor was, up until this week, widely regarded as the most conservative underwriter in the industry.

Peeking into the future: With a hat tip to Calculated Risk, I recalled that I haven’t yet posted the TFS Housing Metrics report for this past week. It’s worth seeing on many fronts. For one, Radar Logic’s RPX data shows that a 25-city composite is tracking an 11 percent decline in housing prices for 2008. For Miami and Los Angeles, it’s worse: a 19+ percent decline is predicted for each.

The CME futures are also clearly tracking more bearish as of late, with none of the 10 cities being traded (or their composite) tracking a gain in housing prices over the next five years.

Click here for the full report, courtesy of Tradition Financial Services.

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