July 27, 2007

Countrywide, IndyMac, First Federal - how bad will the negative-am "Option ARM" and Alt-A "Liar's Loan" mortgage lenders get killed?

Shorting Alt-A "Liar's Loan" and negative-amortization "Option-ARM" giants Countrywide, IndyMac and FirstFed these past few months has been like shooting fish in a barrel.

Do you realize that with Option ARM loans, the lender recognizes the shortfall in monthly payment as immediate income on their books? Even though this money will NEVER get paid back? E-N-R-O-N.

Their business models have gone kaput, none of them have "Marked to Market" yet, meaning there's significantly more trouble to come, and investors have gotten wise to their accounting games despite the spin coming from their IR departments and CEO suites.

So, how much farther will they fall, or have they gotten as low as they will go?

(Note, I'm still short IMB and FED)

Today and Monday should be interesting days in the market. Wild swings. Up, down, and all around. And remember, stock prices do not equal home prices. Mutually exclusive.

22 comments:

Anonymous said...

It was obvious that FED was in the market buyin gup their own stock at the close yesterday.

Like my father would say said...

How bad?

Reeeeeeeeeally bad.

area 51 said...

Good advice to the DOPES and DOLTS that stock prices do not equal housing prices.

Anonymous said...

It's actually going to get much worse! With home prices dropping refinancing will be a problem unless you have cash to pay down the loan. This will apply to all loans.

Prime Problem:
Home Prices
That Are Falling
By SCOTT PATTERSON
July 26, 2007; Page C1

Many subprime mortgages that have gone bad never should have been made at all. Some of the prime loans that are starting to go bad should have been made only if the lenders could guarantee that housing prices would keep going up.

They didn't, and that contributed to Countrywide Financial's 33% drop in quarterly earnings and 10% stock drop on Tuesday. The culprit, the company said, was a surprising jump in delinquencies by prime borrowers who had taken out home-equity loans.
[Chart]

When prices were rising, homeowners were able to wiggle out of mortgages by refinancing or selling.

Now, amid tighter lending standards, air is seeping out of the bubble, and the escape hatch for troubled borrowers has slammed shut.

"The challenge now is going to be for people who would like to refinance, but the value of the property is materially lower than their existing loan," said housing economist Thomas Lawler.

That means more prime-loan defaults are likely on tap. Today's report on June new-home sales could show how aggressively home builders have been cutting prices. Sales of newly built homes in April surged 12%, in part due to an 11% drop in the median sale price. Prices fell just 1% in May and sales fell again.

Another clue could come from D.R. Horton, which reports fiscal third-quarter earnings today. The home builder said earlier this month that net home orders had tumbled 40% from a year ago. The question is will the company slash prices to get sales moving again? (More on the housing market, page D1.)

Citigroup May Be Hit Hard by Tightening Debt Market

With the wheels coming off the $12 billion auto loan backing the leveraged buyout of Chrysler, J.P. Morgan Chase, the lead arranger of the deal, has a bit of egg on its face. But the bank's archrival, Citigroup, may look just as bad as leveraged-debt investors refuse to part with their money.

Citigroup was a lead arranger of $24.6 billion of U.S. loans and bonds yanked from the market, according to Reuters Loan Pricing. Besides Chrysler, it was one of three leads on Allison Transmission, a $3.1 billion loan deal pulled earlier this week. That total doesn't include deals like Dollar General, where underwriters including Citigroup and Goldman Sachs Group sacrificed fees to get them sold.

Citigroup's shares have fallen about 10% since the beginning of last month, while J.P. Morgan's are down 13%. Falling prices for loans in the secondary market could hurt banks' results if they're forced to sell them at a discount. The company is comfortable with the credit it has extended, Gary Crittenden, Citigroup's finance chief, said last week.

"There's a lot of uncertainty," says Jeffrey Harte, analyst at Sandler O'Neill & Partners.

Citigroup has a role in the largest deals in the pipeline, too: TXU, First Data., Alltel and Clear Channel Communications. Recently, Charles Prince, Citigroup's chief executive, said the company was still willing to finance buyouts. "As long as the music is playing, you've got to get up and dance," he said. Were he asked now, would he still be dancing?

armed said...

Some will get MORE killed than others. They will even be DEADER than the others. I bet they will be killed beyond dead. Like dead dead. Like really dead. Like OMG...

Anonymous said...

I agree alot of people will be hurting. Everyone keeps talking about subprime, f subprime all the people i know have 720 credit plus and up but bought way to high a priced how with i/o loan rather than taking on a small loan on a fixed 30year.These people make good money but once they can't sell or refi to higher rate or can't refi because prices are moving down they will be walking away. This won't happen over night but will happen month after month for years unless fed drops rates. Heloc's have adj way up from 1 year ago. I know so many people in cali who took out all there equity to buy investment properties in vegas, florida, arizona and used owner occupy loans. So the #'s are so screwd because the talking heads think the home were purchased owner occupied because they lied on the loan and were hoping to flip but are now stuck renting those places at serious negative #'s. How many loans were lied on as owner occupy but were not. People talking about a bottom i'm not sure we have even started yet.

Anonymous said...

The Coup De Grace has been delivered to the mortgage lenders. It's over. They're bleeding to death with no chance of bounce. Say goodbye to your house value because only valid mortgages will be given, and even those will be hard to get. You know, like the old days when money meant something. No more "I make 10,000 a month" on your application. No no.

I figure 250k splits the market. The middle class won't be able to finance more than that much, which essentially means all homes prices above that won't sell because no one will be given a mortgage to buy them.

And just because you already own a house that you could sell to finance the down payment is no solution. You won't be able to sell your current house to buy the new one!

Rich people, well, they can still buy but they are so few it isn't going to make any difference.

Anonymous said...

Futures point to a positive today the drop was just a abberation.

Anonymous said...

A lot of homeowners with these types of loans are experiencing an inch in a certain locale these days.

westwest888 said...

For those of us who watch CNBC North America, you'll notice the Countrywide Financial has a commercial spot several times per hour. This is interesting, because I don't see their advertising on ANY other channel and I have almost 200 channels at home.

They're trying to pump up their goodwill with investors. And there were suckers who bought it in the May/June rally. And I bet they thought it was a household name because it was on CNBC more than Jim Kramer.

borkafatty said...

I told my brother 9 months ago refinance your loan now..he said

" Ya Ya no big deal housing always goes up"

He has an IO-ARM in the amount of $332,000 no money down loan..(if the house is worth $80,000 it would not surprise me, non the less.

I said to him you are going to get it up the arse dude I am not kidding...his reply

" Why are you always so negative the economy is doing great I'll get to it"

This is the honest to gods truth...and the worst part about it is that he has a great credit score and such...but at this point in time he has been unable to find financing...the lenders, no bull shit...have been hanging up on him...he told me this last night...in that Tattle Tail Gray color looking skin, like when you have the Flue.

he is F@UKED and dammit I told him months back..my sister is more stressed out than i can ever remember....Told you so...Man but that New Harley looks nice sitting in the driveway..sure does.

Anonymous said...

"Poverty is up; family income is down.
Personal bankruptcies are up; the stock markets are down.
Personal debt is up; consumer confidence is down.
Foreclosures are up; housing starts are down.
Health-care costs are up; health-care coverage is down.
Everything that should be down is up. Everything that should be up is down."

al gore speech 1992.......


what?

Mark in San Diego said...

ANON - "Rich people can still buy. . ."

Yes, that may be true, but the rich people I know here in downtown SD are also pretty savvy about finance. Talked with an oil company guy last night, and a upscale consultant and his wife, and they fully understand the housing market - even they want a bargain, and feel they will be able to buy much more a year from now. . .it is only the uninformed "lotty winner" types who would rush in and buy.

Anonymous said...

Selling a 2nd mortgage in 2005 or 2006 to a "prime" borrower making a 0% down deal is not a wise loan. Countrywide *should* be taking it in the shorts for that specific stupidity. This is an indication of the coming of the apocalypse? I don't think so.

Anonymous said...

Rich people, well, they can still buy but they are so few it isn't going to make any difference.
-----------------------------------

dude, there are a lot of rich people. Sure, as a percentage their numbers seem small but in absolute head count there are a lot, especially if you count foreign investors.

Anonymous said...

Gives thanks to the GOP

Anonymous said...

Dropping rates won't help. It wasn't the low rates 5% that kept the bubble going from 2004-2006. It was the toxic teaser rate loans. Who will be handing those loans out the next 5-10 years? Who will buy the CDO's and MBS's loaded with toxic loans? The chinese came out and said they got burned. The GSE's can only sell so much junk paper. Now what?

K.W. - Southern Ca. said...

OPM - Other People's Money.

This is how the really rich stay rich.

Also, they don't spend more then they have to, especially when it comes to housing.


Mark in San Diego said...
ANON - "Rich people can still buy. . ."

Yes, that may be true, but the rich people I know here in downtown SD are also pretty savvy about finance. Talked with an oil company guy last night, and a upscale consultant and his wife, and they fully understand the housing market - even they want a bargain, and feel they will be able to buy much more a year from now. . .it is only the uninformed "lotty winner" types who would rush in and buy.

Shakster said...

Sorry to say,but the traps were thought out well in advance.
#1-Revised Bankruptcy Laws
#2-Contractual covenenents in the loan contracts that prevent Due Process from being served upon Banks ,and Brokers.
#3-401k,and pension funds being eroded into shoring up the system.
#4-Prepayment Penalties
#5-IRS Liabilities on the consumer for Bank losses(Defaults = No home but the buyer still Pays)
#6 Wall Street's use of puts and calls to bring prices of anything to a target range.(overall very few succeed in options)
#7 Consider #5 along with what the banks are allowed to do with negative numbers.The signature on a loan contract is a promise to pay in the future.This future money is utilized in the present.
#8 All Judges are corrupt,and are part of the fleecing system.
#10 The TaxPayer/Consumer Tax pipeline.
#11 Dollar devaluation/along with a compliant traitorous Media.(Joe six Pack Has no clue what hit him)
#12 The general ignorance of US citizens,and the Government education system that insures it.
#13 The need,or want of humans to be well off to a point of desperation as the cycle of working for less deteriorates into servitude for hastey,unexperienced,and non disciplined choices.(Concerns JSP)

The Above are what the "Big Boys " use to make hollow dollars,confiscate wealth,and con US citizens out of their Hard earned "Value".
Lets not underestimate these crooks.
The war machine is also their option,and when it comes time to steal resources to shore up the perception by the Masses that everything is fine in DollarLand they will use it.

Anonymous said...

Borkafatty said:"This is the honest to gods truth...and the worst part about it is that he has a great credit score and such...but at this point in time he has been unable to find financing...the lenders, no bull shit...have been hanging up on him...he told me this last night...in that Tattle Tail Gray color looking skin, like when you have the Flue".

LauraVella said: Bork, it's sad to hear your BIL fully understands what you were trying to tell him now. We know you have tried to warn him over and over and your words of wisdom fell upon deaf ears....I'm actually surprised lenders are hanging up on him instead of trying to put him into a different loan product. That is just evil.

This is exactly what you and all of us here at HP including myself have been saying for years. That even people with excellent credit were getting the I/O and prepayment penalty loans because the payments are too high for them to qualify for a fully fixed 30 yr mortgage.

God help all of us...especially the relatives that were so convinced that "housing only go up".

Anonymous said...

From Shakespeare's Hamlet, 1603:

LORD POLONIUS:
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

Good thing no one listened to this idiot...then we would only own what we could afford.

Anonymous said...

armed said...
Some will get MORE killed than others. They will even be DEADER than the others. I bet they will be killed beyond dead. Like dead dead. Like really dead. Like OMG...
July 27, 2007 5:59 AM

Some folks will be "dead right" as my dad used to say. Meaning they can be "right" and dead at the same time.