Subprime - Dead; Alt-A - Fatally Wounded; Prime Jumbo’s Next
Chuck Ponzi August 2nd, 2007
Bloomberg finally catches up to where Calculated Risk was already early today.
Referring to Indymac:
The market for mortgage bonds has become “very panicked and illiquid,” CEO Michael Perry wrote in e-mail to employees yesterday. National City Corp. this week stopped buying second mortgages from other lenders and making some stated-income loans. Wachovia Corp., the fourth-biggest U.S. bank, today decided to stop making Alt A mortgages through brokers.
It gets worse.
Atlanta-based SunTrust Banks Inc., the 14th largest home lender, has “pretty much gotten out of Alt A” for now, said Sterling Edmunds, who heads its mortgage unit.
“Over the past week there’s been no liquidity in the non- conforming mortgage market,” Edmunds said. He said he has less ability than ever before in his career to sell loans to companies other than Washington-based Fannie Mae or McLean, Virginia-based Freddie Mac, or in securities guaranteed by them. That includes so-called prime jumbo loans, or ones with little risk that are larger than the companies can buy, he said.
Consider for a moment what “no liquidity” means.
Some talking heads have stated that we are not in a “credit crunch”. What do you think after reading this?
Welcome back.
I figured this action would draw a response.
Anyhow, seems like carnage would have been worse in the market except for a couple odd late day trades.
There also seems to be a low volume float upward and heavy selling downward all over the financial stocks exposed to this stuff.
I figure you went through the Credit Suise Report on the numbers for subprime. Should be able to get a idea about the default magnitudes that we will see.
It an interesting show so far. Cramer and his ilk are calling for a rate cut and don’t seem to realize that we are at the end game.
Indeed.
Talk about pushing on a string to commence in
5…4…3…2…1
That, my friends, is the problem. Here comes Senator Bail-em-out, President Wannabee, ready to spray gasoline on the fire.
Might as well hyperinflate the debt bubble a bit more while crushing the few remaining people with savings.
Great.
I sent Dodd a few letters about the mistakes of a bailout.
I now get spam messages from his staff about working on his campaign
Few remaining people with savings…
Yes, all 3 of them.
Wells Fargo just repriced Prime Jumbo from 6.8% to 8.0% aka they stopped funding Prime Jumbos.
Source?
I’d love a link.
On their site, they’re still 7.0% for 30 yr fixed jumbo. as of 12:31 PM Eastern 2007-08-03.
See:
https://www.wellsfargo.com/mortgage/rates/
Chuck
MTGM has a link saying that a bunch of lenders are jacking up rates.
We could be heading for that global credit event this fall perhaps early spring.
Who will survive?
Chuck,
What do you think of having the treasury print money and use that as a stimulus to income in the US.
Might be a way to stimulate some kind of infastructure devlopment, devalue the currency, inflate income while not running up more debt.
I am not talking a huge ammount as most of the FB are finished. Just a 4-5% increase in moeny supply that might produce partial social value.
I worry that it would be overdone and make a Japan style deflation.
Sorry it took so long to respond:
Debt monetization is exactly what the government will do if necessary.
Considering the real problem is the illiquidity of the secondary mortgage market (and general bond market), the overall question is now that risk has been repriced (and likely properly so), how do we get on with the rest of our lives?
I’m hoping that homes will be seen more as a place to live than the means to a financial end. I would like to actually have a home again in a few years. I believe we have misallocated our country’s valuable resources to real estate. Stupid, stupid, stupid. Especially with China snapping up productive capacity. If/when China rebalances, we’re likely to see some pretty strong inflation.
In the short term, I’m expecting deflation… medium term, inflation, and long term neutral.
Chuck Ponzi
Bear Stearns JAN 120 put
bid 19.50
ask 22.80
The roughly corresponding call, the JAN 110, has a spread of 2, still quite high, but nothing like the 3.2 spread on the put.
So, Wells Fargo Mortgage is the biggest in the country. It is based in Minneapolis, right next to the I35W bridge. Employee/survivors are quoted in the press. The president is even rumored to be a survivor. Coincidence, or is the demolition reflex standard operating procedure for financial meltdowns?
New Conforming Loan Limits to Prop up the SD Market.
First, I like your website…
Second,
How do you think the conforming loan limit ($417K) revamp to higher limits will affect the San Diego, L.A. and other high price real estate markets and it’s revaluation/correction?
My initial response to this is it really stinks for those millions of us that live in high cost areas (like L.A. and San Diego) that have been waiting for this market correction so prices will come down into an affordable range. Now this bailout comes along and props up the mid to high price range properties because more people can afford them again, and it bails out all the speculators from high interest jumbo loans.
Correct if I’m wrong but I’m thinking, “what a crappy system!”
What are your thoughts on this?