Monday, May 5, 2008

Not everything is quiet on the Western Front

Credit and housing woes continue and throw a speed pump into the bear market rally. Here are some headlines from HousingWire:

FHA Refi Plan Hits Speed Bump in Senate Committee
The roadblock in this case appears to be primarily one man: Sen. Richard Shelby (R-Ala.), the ranking Republican on the Senate Banking Committee, who is either the last bastion of sensibility or a troublesome holdout, depending political affiliation.

Back in January congress and the White House enacted a stimulus package that also raised GSE loan caps.
Tentative Economic Stimulus Package Would Boost FHA, GSE Loan Caps
Published: January 24, 2008
The package also raises the conforming loan limits for Fannie Mae and Freddie Mac, beyond the current $417,000, which would allow the government-sponsored companies to buy bigger loans in areas with high housing costs. Rep. Barney Frank, the Massachusetts Democrat who chairs the House Financial Services Committee, said the new limit would be 125% of a metropolitan area’s median housing price, up to a cap of about $725,000.

S&P Cuts 184 Prime Jumbo RMBS Classes; Warns AAA Downgrades Ahead
Standard & Poor’s Rating Services said late Thursday that it cut ratings on 184 classes of U.S. residential mortgage-backed securities from 52 transactions backed by prime jumbo loan collateral. All affected deals were from the 2006 vintage, and none of the cuts reached up to the AAA level.

At least not yet. S&P also put 110 ratings of mostly AAA-rated prime jumbo RMBS classes on negative ratings watch, after announcing the downgrades. The warnings represent the first signal from any major rating agency that prime jumbo mortgages may be running into greater problems than originally expected.

Thursday’s cuts totaled an issuance amount of nearly $3.5 billion, S&P said — a fraction of the prime jumbo market, to be sure, even within the 2006 vintage. But an unnerving trend, nonetheless.

S&P Stops Rating Home Equity RMBS; Cites “Anomalous” Borrower Behavior
“After reviewing and analyzing the performance data available for U.S. closed-end second-lien (CES) mortgage loans and the related residential mortgage-backed securities (RMBS), Standard & Poor’s Ratings Services believes that this market segment does not allow for a meaningful analysis of new issuance and securitization,” the agency said in a press statement late Thursday.

Apparently, there simply isn’t enough credit enhancement in the world to account for losses that reach that high — and while S&P said it will continue surveillance on existing CES deals, sources said that S&P’s announcement underscores just how heavy losses really are in an area of mortgage finance that was once among the industry’s hottest.

How hot? Consider that S&P rated nearly $18 billion in CES deals druing 2007 alone.

Investment Dealers’ Digest, which interviewed S&P spokesperson Adam Tempkin, noted that S&P is seeing borrower behavior that Tempkin characterized as “anomolous and unprecendented” — a reference to a growing number of borrowers simply walking away from their homes.

Insured Defaults Up 37 Percent in March
Borrowers with mortgage insurance fell more than 60 days behind on their mortgage payments at an increased pace in March, with the number of primary insurance defaults up 37 percent last month relative to year-ago numbers. The Mortgage Insurance Companies of America, a trade group comprised of most of the major private mortgage insurers, said earlier this week that 58,131 defaults were recorded in March, up from 42,362 one year earlier.

The number of defaults has fallen steadily from January’s high-water mark of 68,950, although industry experts say such an early-year trend is common. In 2007, the number primary insurance defaults fell 19.3 percent between January and March; this year, the number of defaults has fallen 15.9 percent since January. MICA does not seasonally-adjust its data.

UBS Investment Research Monday cut its growth forecast for the U.S. economy, saying it now expects the economy to contract rather than grow in the third quarter because of a worse than expected slump in the real estate market. The firm lowered its third-quarter real gross domestic product growth estimate to negative 0.5% from a previous estimate of positive 1.5%.

No comments: