Wall Street Journal Page One Expose: The United States of Subprime

Thanks to Beth over at the WSJ for sending this one over. I rip on the MSM for not doing their jobs during the bubble (or the Iraq invasion) but damn, some of 'em are making up for lost time now (the WSJ, the FT, the Economist and more).

Too much in here to list, but I'd encourage all of you to read the full article, and know what's coming.

This is gonna be ugly, it's gonna last for years and years, and the impact of the housing crash and mortgage meltdown will be felt worldwide.

No matter what realtors on commission try to tell you.

The United States of Subprime - Data Show Bad Loans Permeate the Nation; Pain Could Last Years

As America's mortgage markets began unraveling this year, economists seeking explanations pointed to "subprime" mortgages issued to low-income, minority and urban borrowers. But an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.

The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.

The Journal's findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography. From investors hoping to strike it rich by speculating on condominiums to the working poor chasing the homeownership dream, subprime loans burrowed into the heart of the American financial system -- and now are bringing deepening woe.

"We had an aggressive home-mortgage industry trying to get people into homes they couldn't afford at a time when home prices were very high. It turned out to be a house of cards," says Karl Case, an economics professor at Wellesley College. "We're in the early stages of the cleanup."

Uh, a little late boys: SEC investigating mortgage ratings agencies. Toxic mortgages rated AAA actually should have been ZZZZZZZZZZZZZZZ. Oopsie!

Strangest thing to see the SEC FINALLY get off their duffs and do a bit of work. Your government at work folks. Investigating how Moody's and S&P gamed the system and lost billions for investors AFTER the fact, is, well, incompetent at best and corrupt at worst.

The ratings agencies were employed by CDO bundlers to rate the toxic mortgage CDO bundles. The better the rating, the more work they got, the more they got paid.

Triple A!!! AAA!!!! Safest investment on the planet!!!! (Now pay us)

Unfrickingbelievable.

Man, after China and governments around the world realize how bad they got schooled in this mess, they're gonna be PISSED!!! Too bad they didn't read HousingPANIC...

SEC looks at ‘influence’ in credit ratings

The SEC is investigating whether issuers and underwriters of residential mortgage-backed securities “unduly influenced” credit-ratings agencies to give them higher ratings than warranted, SEC Chairman Christopher Cox said today at a Senate Banking Committee hearing.

The agencies have blamed the unexpectedly large incidence of mortgage delinquencies in the last year on factors including fraud in mortgage originations, deterioration of loan underwriting standards and a faster-than-anticipated adoption of more restrictive lending standards, which made it difficult for overleveraged borrowers to refinance, he said.

FLASH: And today, for all the world to see (including the SEC), we see why Countrywide Mortgage's Angelo Mozilo was dumping shares like rotten oranges

I hope some of you were short Countrywide. HP'ers saw this car crash coming a mile away. Next up - IndyMac.

Yes, I'm short IMB and CFC, and it was all so obvious now. Mozilo is laughing all the way to the bank, but we all know you can't take your money to jail... Good luck Orange Man with the gotta-be-coming-soon SEC investigation.

Countrywide quarterly profit tumbles; shares off 7%
Subprime problems spread to top-rated mortgages, lender says

NEW YORK (MarketWatch) -- Countrywide Financial Corp. reported a 33% drop in second-quarter net income on Tuesday and signaled that problems in the subprime mortgage market have spread to the highest-quality home loans.

The warning pushed Countrywide shares down more than 7%, to their lowest level in almost two years. It also weighed on the broader stock market because investors have been waiting to see if credit problems in the subprime-mortgage sector would spill over into higher-rated, or "prime" home loans.

"The company incurred increased credit-related costs in the quarter, primarily related to its investments in prime home-equity loans," CEO Angelo Mozilo said in a press release detailing Countrywide's second-quarter financial results.

Countrywide's second-quarter net income fell 33% to $485 million, or 81 cents a share, down from $722 million, or $1.15 a share, earned a year earlier, on softening home prices.

Further dampening enthusiasm, Mozilo commented: "During the quarter, softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories as a result."

Sacramento Housing Bust: Anyone want a house at 50% off? Anyone? Anyone?

Unintended housing crash consequence #1843: Lots of weeds growing in yards

HousingPANIC Stupid Question of the Day

This one's a bit harsh but needs to be asked...

Should poor people with limited income, inconsistent work and credit histories and no chance of paying the loan back have been allowed to buy $500,000 houses with teaser rate liar's loans on interest only terms with no money down?

Follow-up question - what were Countrywide and IndyMac thinking?

(Disclosure - I'm short IndyMac, and not in favor of people living beyond their means)

FLASH: Novastar blows up - the latest subprime casualty. So when does Countrywide pre-announce it's disaster?

The race to jail between insider sellers Bob Toll and Angelo Mozilo seemed to be neck and neck, but I'd bet more on Mozilo today, as not a word yet from Countrywide about their impending disaster and write-down. I guess they're still adding up the carnage.

The loans ain't gettin' paid back folks. Massive mortgage fraud, flaky flippers and plummeting prices have destroyed anyone playing in the subprime pool.

Fannie and Freddie know it too. And we're talking TRILLIONS when it comes to those impending disasters.

Here's the latest dot-subprime to predictably blow up. Now there's blood in the streets, and we're just starting...

(disclosure - I'm gleefully short CFC and LEND at time of writing, and sure wish I was short 'em all)

NovaStar Flames Out

Shares of NovaStar Financial plummeted 26% after the real estate investment trust became the latest casualty of rising problems in the subprime mortgage market.

The Kansas City, Mo., mortgage lender reported a loss of $14.4 million, or 39 cents a share, compared with a profit of $26.4 million, or 84 cents a share, a year earlier.

"The credit performance of our portfolio, and specifically our 2006 originators, deteriorated during the fourth quarter, resulting in impairments on mortgage securities and additional loss provisions for loans held-in-portfolio in the REIT," says Scott Hartman, NovaStar's CEO. "Also, our gains upon securitization were reduced during the quarter because of lower whole loan prices. Furthermore, during the fourth quarter, we experienced a greater level of loan repurchase requests due to early payment defaults than we have historically."

The news comes just two weeks after shares in NovaStar rival New Century blew up after the company warned it was experiencing similar problems.