US - Subprime

Re: Subprime

Postby Chiron » Fri Sep 05, 2008 7:43 am

U.S. House Price Decline Could Be Worse than Great Depression, Economist Shiller Says

http://finance.yahoo.com/tech-ticker/ar ... pc,fre,fnm

Eight years ago, Yale superstar professor and MacroMarkets chief economist Robert Shiller famously called the top of the stock market in his book Irrational Exuberance. Then, a year before the housing bubble peaked, he predicted the colossal bust we are now experiencing.

If you recognize Shiller's name, it’s because the Standard & Poor's/Case-Shiller home price indexes, which he developed with Wellesley College economist Karl Case, have become the nation's most authoritative source for home price trends.

In part one of my one-on-one with Shiller, we discuss the grim outlook for U.S. housing, which he tackles in-depth in his new book The Subprime Solution. Highlights of our first discussion include:

Home price declines are already approaching those in the Great Depression, when they plunged 30% during the 1930s. With prices already down almost 20%, it's not a stretch to think we might exceed that drop this time around.
There are about 10 million homeowners whose debt is higher than their home value, which has broad implications for how Americans feel about their wealth and spending habits (read: more pressure on consumer spending).
The current hopeful consensus -- that house prices will bottom soon and then begin to recover -- is most likely a dream. Housing markets don't usually have "V-shaped" recoveries. And even if house prices stabilize in nominal terms, after adjusting for inflation, most homeowners will continue to lose money.
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Re: Subprime

Postby millionairemind » Fri Sep 05, 2008 9:18 am

Insurer AIG may hive off toxic assets
By James Quinn, Wall Street Correspondent
Last Updated: 8:44pm BST 04/09/2008

Insurance giant AIG is exploring the possibility of placing some of its most toxic sub-prime-related assets in a separate vehicle in an attempt to protect the rest of its business from further harm.

The troubled group, which ousted British-born chief executive Martin Sullivan in June, is believed to have appointed JP Morgan Chase to advise it on a possible new structure for the company.

The main aim of creating a special vehicle would be to separate tranches of credit default swaps (CDSs) - which have resulted in the group reporting record losses in each of its last three quarters -from the rest of AIG's insurance business.

AIG became embroiled in the sub-prime crisis as a result of choosing to sell CDSs to mortgage providers and investors to guarantee against risks such as default.

Full story
http://www.telegraph.co.uk/money/main.j ... aig105.xml
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Re: Subprime

Postby millionairemind » Fri Sep 05, 2008 9:35 am

Credit market is sizing up again..

Credit strains linger, Pimco pleads for help
Thu Sep 4, 2008 6:14pm EDT
NEW YORK (Reuters) - Banks and businesses are still having trouble raising money, according to data on Thursday that reinforced the prospect that the year-long U.S. credit crisis will persist for the foreseeable future.

Bill Gross, the influential manager of the world's biggest bond fund, Pimco, called in his latest investment outlook for unprecedented government intervention, saying it was needed to avoid another damaging wave of asset sales.

Such concerns spilled over into the equity markets, where the Dow Jones industrial average dived nearly 350 points, its worst one-day drop in over two months.

In one encouraging sign, issuance of commercial paper, a form of debt used to raise short-term capital that has been hard hit by the turmoil, rose for a fourth straight week. Analysts said it was too early to tell whether this increase reflected a real improvement in conditions rather than seasonal adjustment quirks.

"We would need to see more of a continuation of this trend, for another month or so, before making any solid judgments," said John Canavan, market analyst at research company Stone & McCarthy in Princeton, New Jersey.

Other areas offered less hope. The interbank cost of borrowing three-month dollar and euro funds both edged higher, with dollar Libor reaching four-month highs, according to the British Bankers Association.

In the meantime, strong interest in the Federal Reserve's short-term funding auction suggested banks are still strapped for cash. Primary dealers submitted $45 billion of bids for the $25 billion of Treasury debt on offer.

Full Story
http://www.reuters.com/article/ousiv/id ... 8220080904
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Re: Subprime

Postby fclim » Fri Sep 05, 2008 11:34 pm

i think (often wrongly), we are abt 1/2 way thru the silly credit bubble... total market abt 2 trillions, wrote off abt 500 billion... my guesstimate is 1 trillion is silly credit money, so, another 500 billion to go? :roll:

in the meanwhile, i think (again, u already know the disclaimer) another silly credit bubble (credit cards / unsecured personal loan) maybe on the verge of bursting.... :o read a small article about it in last issue's fortune mag... that's for another day, another thread...

so, let's move on to next episode on subprime...

have fun,
fc

===================================

Source: http://biz.yahoo.com/ap/080905/home_foreclosures.html

AP
Home loan troubles break records again
Friday September 5, 10:56 am ET
By Alan Zibel, AP Business Writer
Delinquencies, foreclosures rise to more than 9 percent of US home loans in second quarter

WASHINGTON (AP) -- A record 9 percent of American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of June, as damage from the housing crisis continues to mount, the Mortgage Bankers Association said Friday.

But the source of trouble in the mortgage market has shifted from subprime loans made to borrowers with poor credit to homeowners who had solid credit but took out exotic loans with ballooning monthly payments.

The problem is also concentrated in a handful of states, the worst being California and Florida. The real estate markets in those two states were fueled by some of the riskiest lending practices and rampant speculation during the housing boom that has turned into a devastating bust.

"That's clearly the problem," said Jay Brinkmann, the association's chief economist. "The national numbers are driven by the two largest states" with the most outstanding home loans.

The latest quarterly snapshot of the market broke records for late payments, homes entering the foreclosure process and for the inventory of loans in foreclosure. The trade group's records go back to 1979.

The percentage of loans at least 30 days past due or in foreclosure was up from 8.1 percent in the January-March quarter, using figures that were not adjusted for seasonal factors.

New foreclosures were concentrated in eight states: Nevada, Florida, California, Arizona, Michigan, Rhode Island, Indiana and Ohio.

But for the first time since the mortgage crisis started, delinquencies on subprime adjustable-rate loans declined. While more than one out of every five homeowners with a subprime ARM is still in default, that portion dipped 1 percentage point from the first quarter to 21 percent.

What's driving the delinquency rate up now is the number of homeowners with risky, adjustable-rate prime loans made with little or no proof of the borrowers' income or assets.

Many of these loans allowed the borrower to pay only the interest on the loan for a fixed period of time. Others gave borrower the option to "pick-a-payment," adding any unpaid interest to the principal balance.

More than one out of 10 borrowers with a prime adjustable-rate loan is now delinquent or in foreclosure. That portion, 11.3 percent, was up from 9.7 percent in the first quarter and is expected to continue to rise as more homeowners see their monthly payments spike.
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Subprime

Postby ishak » Sat Sep 06, 2008 2:34 am

U.S. Mortgage Foreclosures, Delinquencies Reach Highs

Sept. 5 (Bloomberg) -- Foreclosures accelerated to the fastest pace in almost three decades during the second quarter as interest rates increased and home values fell, prompting more Americans to walk away from homes they couldn't refinance or sell.

New foreclosures increased to 1.19 percent, rising above 1 percent for the first time in the survey's 29 years, the Mortgage Bankers Association said in a report today. The total inventory of homes in foreclosure reached 2.75 percent, almost tripling since the five-year housing boom ended in 2005. The share of loans with one or more payments overdue rose to a seasonally adjusted 6.41 percent of all mortgages, an all-time high, from 6.35 percent in the first quarter.

Tumbling home prices are making it difficult for even the most creditworthy owners with adjustable-rate mortgages to sell or get a new loan as their financing costs rise, said Jay Brinkmann, MBA's chief economist. Prime ARMs accounted for 23 percent of new foreclosures and subprime ARMs were 36 percent, he said.

"People chose the lowest payment option to get into some of the very expensive housing markets and now that prices are coming way down, they can't sell and they can't afford the higher payments,'' Brinkmann said in an interview.

The three-year-old housing slump has slowed growth of the world's largest economy, caused more than half a trillion dollars of losses at banks such as Citigroup Inc. and UBS AG, and crimped earnings for companies such as Home Depot Inc. and Lowe's Cos. that rely on home purchases to fuel demand.

Economic Growth


The drop in home sales and values, along with tighter credit conditions and higher energy costs, probably will "weigh on economic growth over the next few quarters,'' Federal Reserve policy makers said Aug. 5 when they decided to hold their benchmark rate at 2 percent. The central bankers cut the rate seven times in the last year in an attempt to avert a U.S. recession.

The Fed probably will keep the rate level for the next few months, according to the price of Fed funds futures. There's an 81 percent chance of no change at the Sept. 16 meeting and a 75 percent chance of no action at the Oct. 29 meeting, they indicate.

Foreclosures started on prime mortgages rose to 0.67 percent from 0.54 percent and the foreclosure inventory increased to 1.42 percent from 1.22 percent, the report said. The share of seriously delinquent prime mortgages was 2.35 percent, up from 1.99 percent.

Prime Mortgages

The share of new foreclosures on prime ARMs was 1.82 percent, triple the 0.58 percent in the year-earlier quarter, and the total foreclosure inventory was 4.33 percent, up from 1.29 percent, the report said. The share of seriously delinquent prime ARMs was 6.78 percent, rising from 2.02 percent a year ago.

New foreclosures on subprime loans rose to 4.7 percent from 4.06 percent in the first quarter, according to the report. The total foreclosure inventory increased to 11.81 percent from 10.74 percent and the so-called seriously delinquent share of loans that are 90 days or more overdue rose to 17.85 from 16.42 percent.

The bankers' report cites percentages without providing the number of mortgages. The U.S. had $10.6 trillion of outstanding home loans at the end of March, according to a June 5 report by the Federal Reserve. Mortgage lending fell to $320.9 billion in the first quarter, down from $782.6 billion a year earlier, the Fed report said.

Existing home sales fell to a 10-year low in the second quarter and the median price for a single-family house dropped 7.6 percent, according to the National Association of Realtors in Chicago.

Market Bottom

Tumbling prices and foreclosure sales by banks may be helping to form a bottom for the housing market, said Brian Bethune, chief U.S. financial economist at Global Insight Inc. in Lexington, Massachusetts.

"People who have been waiting on the sidelines -- and there have been quite a number of them -- are starting to see prices come down to the point where they perceive good value,'' Bethune said in an interview. "Foreclosures do provide opportunities and induce some people to come back into the market.''

Sales of previously owned homes rose 3.1 percent in July to an annualized pace of 5 million, boosted by foreclosures that accounted for about a third of all transactions, the National Association of Realtors said in an Aug. 25 report.

The Mortgage Bankers report is based on a survey of 45.4 million loans by mortgage companies, commercial banks, thrifts, credit unions and other financial institutions.
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Re: Subprime

Postby HengHeng » Sat Sep 06, 2008 3:40 am

It is just the America dream bursting nia ... Americans has long lived in their own fantasy pushing all their debts to later through debt issuing ... sooner or later need to pay up one...

So you think Democracy is good ? every 8 year rotate president is good ? See heng sway lah... if kana one lan jiao president .. 8 years enough to cause a country to go into financial ruins and causing every other bugger in the street unable to pay for their long overdued debts.

Americans has overspent way past what they are earning the past 8 years via senseless wars enriching the republican supporter's pockets. Just go look at how many republicans are rich you will know what i'm saying. Though i'm not saying our country dun have but same one lah .. every country got their good and bad. Just only i feel sad that the present one is simply incapable of leading the country.

But people have short termed memories they would soon forget of their lessons and repeat again just like the bull and bears in an economic cycle. I tried to warn many this time round but i dunno how many i've saved but at least personally i didn't get burnt.

Well back to the sub prime issue. I think Aussie is the next country to be bursting soon. Heard alot of the high end properties cannot get people to rent them.. Jia lat liaoz. If aussie burst , asia expecially singapore is the next.

Ours slightly different from others but still jia lat lah .. those property speculators now going to burst soon liaoz. . i just waiting nia.
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Subprime

Postby ishak » Sat Sep 06, 2008 2:41 pm

Is the financial crisis over? Not so fast
By DAN PERRY, 05 Sep 2008

Oil prices are down, the dollar is up, and U.S. growth and exports have perked up a little. So is the global financial crisis winding down anytime soon? Top economists and business leaders meeting Friday at an Italian lakeside resort found plenty to discuss but little to agree on.

Peter Sutherland, chairman of British oil company BP PLC, predicted global economic conditions will remain difficult for some time — but will eventually recover due to growth in China and the rest of Asia.

Sutherland, who is also chairman of London-based Goldman Sachs International, said equity markets would regain strength over time, but acknowledged it was impossible to tell exactly when that would occur.

"I expect a continued period of difficulty because of lower growth, higher inflation and credit markets — but like everything it will pass," he told The Associated Press on the sidelines of the Ambrosetti Forum at the Villa d'Este on Italy's Lake Como.

Few were willing to make predictions on the record, but in private conversations there was a clear sense of optimism that by end of 2009 the bad debt traced largely to the U.S. subprime crisis will have worked its way out of the system and that global financial markets will have stabilized.

Jim O'Neill, Goldman Sachs' head of global economic research, said he believes the credit crisis was largely a problem for the United States — as well as Britain and Spain — and that it amounted to an inevitable correction after years of debt-fueled demand and deficit spending.

"If you're thinking truly globally, you have to think very differently from what we've been brought up on," he told AP. "The problem is very U.S.-centric... It is conceivable that this is a structural shift and going forward the U.S. will see a very different evolution in its growth."

O'Neill — widely credited with the fashionable acronym BRIC to signify the rapidly emerging group of countries Brazil, Russia, India and China — noted that those economies were performing well and the global economy was expected to grow at almost 4 percent over the next year.

And with economies so interlocked, he argued, those countries should be accorded a more prominent place in global governance, regardless of concerns about democratic credentials — for example by including them in a rejiggered Group of Eight, which currently includes Russia but not the other three.

"If I believed that the Chinese consumer was about to collapse I would have a completely different view," he added.

Others at the off-the-record conference expressed skepticism that Chinese consumers could take the place of the Americans anytime soon.

Another issue that occupied delegates was whether the recent rally in the U.S. dollar was just a blip or a new trend that could trouble rising exports which have to date helped stave off recession.

The dollar has rallied more than 10 percent against the euro and sterling in recent weeks, largely due to fears of an economic slowdown in Europe. Friday afternoon, the euro traded at $1.4281 and the British pound was quoted at $1.7673.

Delegates clashed over whether the current inflationary uptick in the United States and some European nations was a long-term threat. Others voiced concern at what they see as a populist tendency toward protectionism emerging during the current US election campaign, particularly on the side of the Democrats.

Some argued that lower oil prices — crude oil has retreated from July's record high above $147 a barrel to around $106 now — and a bust in the commodity boom would have a deflationary effect.

But Jacob Frenkel, vice chairman of insurance and financial services giant AIG, argued that with real interest rates — the central bank rate minus inflation — near negative territory in the U.S. and other major economies, greater inflation was a major concern.

"If you look down the road another year or two it's very likely that you'll see higher interest rates," he told AP — a development which, in the United States, might suppress already anemic consumer spending as well as exports.

The annual gathering at Lake Como is the first since the credit crunch dried up money markets late last summer, leading to turbulence on other financial markets and putting major economies like the United States and several European countries, including Britain, on the path to recession.

Billed as a "mini-Davos" after the annual conference held in Switzerland, the event is being attended by leaders including President Giorgio Napolitano of Italy, President Shimon Peres of Israel, European Commission president Jose Manuel Barroso and U.S. Vice President d**k Cheney.
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Subprime

Postby ishak » Sat Sep 06, 2008 3:07 pm

Nevada Bank Becomes 11th Failed Bank in 2008
Reuters, 06 Sep 2008

Regulators closed Silver State Bank on Friday, the 11th U.S. bank to fail this year as the struggling economy and falling home prices take their toll on financial institutions.

The Federal Deposit Insurance Corp said the Henderson, Nevada bank had $2 billion in assets and $1.7 billion in deposits as of June 30. The failure is expected to cost the FDIC deposit insurance fund between $450 million and $550 million.

Nevada State Bank, which is based in Las Vegas, has agreed to assume the insured deposits. The transaction did not include about $700 million in volatile, high-cost insured funds called brokered deposits.

The FDIC said it will pay the brokers directly for their deposits at Silver State, which was closed by Nevada state banking officials. Its branches will reopen as Nevada State Bank in Nevada and National Bank of Arizona in Arizona.

The FDIC estimated there were about $20 million in uninsured deposits.

Customers can access their money over the weekend by check, teller machine or debit card, the FDIC said.

The biggest bank failure by far this year was IndyMac, seized on July 11 with $32 billion in assets and $19 billion in deposits as of March. It was the third-largest bank insolvency in U.S. history.

The FDIC oversees an industry-funded reserve, which currently stands at about $45 billion, used to insure up to $100,000 per account and $250,000 per individual retirement account at insured banks.

The federal insurer said Nevada State Bank will also buy a small unspecified amount of assets made up of cash and securities. The FDIC said it will try to sell the remaining assets at a later time.

Silver State Bank is the second bank to fail in Nevada this year. First National Bank of Nevada in Reno failed in July.

The agency also has a running tally of problem banks that its examiners closely monitor. At the end of second quarter, 117 institutions were on that list.
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Re: Subprime

Postby LenaHuat » Tue Sep 09, 2008 10:49 pm

This is neat:
ZURICH : The world's largest reinsurer, Swiss Re, is out of danger from major exposure to the sub-prime mortgage crisis, the group's chief executive Jacques Aigrain said in remarks published Tuesday.

"We have no further material exposure to sub-prime in our insurance products," Aigrain said in an interview with German daily economic newspaper Handelsblatt.

The reinsurer group had been hit by the crisis which unfolded from sub-prime or high-risk loans in the United States. It has written down 2.7 billion Swiss francs (1.7 billion euros) in assets so far.

Aigrain said that he was more concerned about the high level of inflation, which could have a negative impact on the insurance sector. In some emerging markets, inflation is beginning to eat into the capital base of insurers.

But this could also be an opportunity for reinsurers, he said.

"Inflation is the price for uncertainty. Uncertainty is our business. We sell certainty," said Aigrain.

On Monday, Swiss Re said insurance companies could be hit with 20 percent more claims on natural disasters this year, with losses from Hurricane Gustav possibly reaching 8.0 billion dollars.
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Subprime

Postby ishak » Wed Sep 10, 2008 12:51 am

Auction-Rate Cleanup Bill for New York State Tops $340 Million

Sept. 9 (Bloomberg) -- The collapse of the market for auction-rate bonds put New York state in the same position as millions of homeowners whose adjustable-rate mortgages reset: It wanted to refinance.

The state had $4 billion in debt with interest rates, set in periodic auctions, that soared as high as 14.2 percent after bidders vanished in February. That was more than triple the January average. The cost to taxpayers rose even more when the state's first option, replacing auction-rate debt with variable- rate bonds, wasn't available for the full amount.

Taxpayers and not-for-profit institutions across the U.S. are on the hook for the same kinds of fees and added interest as New York. The bill for replacing the $166 billion in auction- rate debt may top $7 billion, not counting extra interest, based on New York's expenses. Most of that money is going to the same banks that created and controlled the auction market.

"It's unfortunate that borrowing costs will rise at the very time the state plans to increase bond sales and the budget is under stress,'' said Elizabeth Lynam, deputy research director at the Citizens Budget Commission in New York, a business-funded group that monitors state and city fiscal issues.

At the halfway mark in New York's refinancing plan, its costs already exceed $340 million, including higher-than- expected interest rates and fees paid to the banks, according to state data compiled by Bloomberg.

To get out of the auction-rate market, which collapsed without warning from bankers, the Division of Budget in Albany cobbled together a patchwork of new fixed and variable-rate bonds and cash prepayments.

Largest Single Expense

New York's largest single out-of-pocket cost for exiting auction-rate bonds was $101.1 million. That was to repay borrowings by the state Dormitory Authority, on behalf of the City University of New York, that weren't due until 2014 and 2025. The early repayment, using funds appropriated by the state legislature, soaked up cash New York could have used to provide preschool classes for 32,000 children.

The state's $4 billion refinancing plan for auction-rate debt is coming on top of the $6 billion of new bonds it planned to sell this year for projects like roads, schools and state buildings. Auction-rate securities accounted for 8 percent of the state's $49.6 billion of debt on March 31.

Canceling Swaps

The state so far has replaced about $1.19 billion of auction-rate debt with fixed-rate securities because there weren't enough banks willing to act as buyers of last resort for new variable-rate demand bonds, a cheaper alternative. Lenders offered to support no more than $3 billion of variable debt, an amount "not sufficient to cover our entire need,'' said Matt Anderson, a spokesman for the Division of Budget.

In turning to fixed-rate bonds, the state had to pay to cancel interest-rate swaps while accepting higher rates and shelling out even more in bank fees.

The swaps were agreements intended to insulate the state against fluctuations in auction rates. New York would pay a fixed rate to a bank, which in turn would pay the state a floating one pegged to wholesale bank deposits in London. The effect of the exchange was to hold the state's costs for 40 auction-rate debt issues at 3.47 percent.

All this blew up when auction rates rose and interest on bank deposits fell, instead of moving in tandem as bankers and borrowers expected.

Six Banks

To cancel interest rate swaps as it refinanced, the state paid $37.3 million to six banks -- UBS AG; Lehman Brothers Holdings Inc.; Citigroup Inc.; Merrill Lynch & Co.; Bear Stearns Cos., which is now part of JPMorgan Chase & Co.; and Goldman, Sachs & Co. They arranged the swaps when the auction-rate bonds were first sold, according to the budget department.

The biggest swap cancellation fee was $23.5 million on $450.4 million of Empire State Development Corp. auction-rate bonds that were converted to fixed-rate debt. An additional $5 million was for the early repayment of the $101.1 million of Dormitory Authority bonds. About $9 million more was to cancel swaps in the refinancing of a separate $280.8 million of Dormitory Authority debt, also on behalf of CUNY.

Bank fees for underwriting new fixed-rate bonds are about six times higher than for variable-rate issues. Goldman Sachs collected $2.2 million for the $450.4 million fixed-rate sale by Empire State Development and just $315,000 for $420 million of new variable-rate demand bonds sold at the same time for the agency. The New York-based bank declined to comment on the difference in the fees.

Tobacco Settlement Fund

The first auction-rate bonds to be replaced, for $3.45 million in fees, were those issued by the Tobacco Settlement Finance Corp. It was the only state-backed borrower whose debt specified a 15 percent rate if auctions didn't attract buyers. Failed auctions of other issues were pegged to market rates and never exceeded 6.27 percent.

Interest costs for other new fixed-rate bonds, which averaged 4.76 percent for Empire State Development and 4.42 percent for the Dormitory Authority, will add $69.7 million to the state's interest bill over the life of the bonds, compared with the costs expected on the auction-rate bonds.

The state's $631 million of new variable-rate demand bonds, so named because investors can cash out on a week's notice, also resulted in new costs. Banks collect $368,000 annually for setting new interest rates weekly at levels they expect will attract buyers.

A different group of banks is charging $1.31 million this year for agreeing to act as buyers of last resort for the bonds. The cost of those accords, which range from 0.3 percent for one year from Royal Bank of Canada to 0.67 percent for three years from Wachovia Corp., can vary as they are renewed in future years.

The risk that bank agreements used for variable-rate bonds could become scarcer and more expensive in the future was one reason for why many issuers sold auction-rate bonds earlier in the decade, said Brian Mayhew, chief financial officer of the Bay Area Toll Authority in San Francisco.
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