Ready for the other shoe? Subprime lender Fremont blows up, internal memo leaked?

Here's the news on Friday that sent the stock plummeting (again):

Fremont General Corporation to Exit Sub-Prime Residential Real Estate

Fremont General Corporation, a nationwide real estate lender doing business primarily through its wholly-owned industrial bank, Fremont Investment & Loan ("FIL"), today announced that it intends to exit its sub-prime residential real estate lending operations.

And here's the leaked internal email (may or may not be legit - we'll see tomorrow) that hit the internets tonight (note - I have no FMT position):

From: Brian Daily
Sent: Sun 3/4/2007 4:22 AM
To: *Tampa 2 Office; *Tampa 1 Office; *ResRe Tampa 1 AE
Subject: Fremont ceasing doing business.

Teams,It is with great regret that I must inform you that Fremont Investment and Loan will cease funding loans and doing business. At 12:35 (pst) Saturday, Fremont General received notice from the FDIC that they are not permitting any more loans to be funded by Fremont. In short, our funding available was terminated by the Federal Home bank.

The suddenness of the change and the shift from our communication literally less then 24 hours previously simply perplexes me. However, this simply validates the volatility on our business.

None of us in Hawaii realized or appreciated the gravity of the situation we were facing. There are many questions that many of you have. There is a conference call that will be conducted on Monday that will answer many of these questions that you will have.Jerry Casanova will be able to communicate with you more specifics on Monday morning. Please show up for work to receive these instructions.

I will be leaving the meeting here in Hawaii early and attempting to return to the office sometime on Monday.In order to assist our clients with some instructions-

What are the Sheeple who got taken gonna do?

Desperate Homedebtors who listened to charlatans like Greg Swann and bought in 2005 and 2006 (or god forbid 2007 - are people really that dumb?) are probably about now realizing that they got taken, that they were had (yet their real estate clerk and mortgage broker of course got paid).

What does a person do who realizes that one mistake, just one, has now ruined his financial future? What does a Desperate Homedebtor looking at foreclosure, short sale or massive losses on his Phoenix condo do?

Lawsuits?

Refund?

Bankruptcy?

Arson?

Violence?

Who does he blame? What will he do?

I think we're about to find out.

Swann-Dive: Phoenix and Las Vegas housing ponzi schemes and REIC fraud will now crash the world financial system

Combine massive mortgage fraud, incredible leverage, and a corrupt REIC and you get Phoenix and Vegas, the epicenters of the Late Great Housing Ponzi Scheme, and now the leading cause of the worldwide financial meltdown.

Thank you Phoenix. Thank you Las Vegas. Historic housing bubbles followed by devastating meltdowns. Couldn't have scripted it any better.

Millions will now go unemployed in Phoenix and Vegas. The local homebuilding-based economies will be destroyed. Housing prices will plummet. The illegal immigrant labor force used to build the homes will either go home or go on a crime spree. And hopefully Phoenix and Vegas will go a generation without another bout of stupidity and greed as seen in 2005.

First this note in my International Herald Tribune today:

Off the Charts: U.S. house price pain may be just starting
In the autumn of 2005, the biggest boom in home prices in the United States was in Phoenix. People stood in line just to get on lists to buy new homes. It was possible to make lots of money selling a place on a list well before the house was actually built.

At the peak of momentum in that market, according to the Standard & Poor's/Case-Shiller home prices index, house prices in Phoenix rose 49 percent in one 12-month period.

That was then. When S&P issued its final 2006 price numbers this week, it reported that Phoenix home prices rose just 0.3 percent in 2006. And it said that home prices peaked in June and fell 2.6 percent in the final six months of the year..

Las Vegas, with a 53 percent year-over-year rise in the autumn of 2004, set the mark for best annual performance. In 2006, prices there rose just 0.9 percent.

Then this word from the Arizona Republic today (thanks swift). Will Greg Swann go to jail?

Lawsuits targeting mortgage schemes

Big lenders and Wall Street investors are going after Arizona mortgage brokers, appraisers, real estate agents, title firms and home buyers for fraud.

Dozens of civil lawsuits alleging the gamut of mortgage fraud, from cash-back deals to lying about income on loan documents, have been filed against Valley firms and individuals during the past few months.

Fraud experts and regulators say the lawsuits are only the beginning as the fallout from mortgage fraud starts to hit the Valley.

Cash-back scams involve getting a mortgage for more than a home is worth and pocketing the extra money. The deals inflate home values and leave lenders with losses from loans worth far more than the house itself.

"Banks are going to force mortgage brokers to buy back bad loans, and mortgage brokers don't have the money so they are going to go under," said Richard Hagar, a national mortgage and real estate fraud expert with American Home Appraisals based in the Seattle area. "This is the beginning of the wave of lawsuits, lost licenses and criminal indictments in Arizona."

HousingPANIC Stupid Question of the Day

Do real estate clerks now (finally) understand what is happening to the housing market, and to their jobs and future prospects?

Or are they really as dumb, clueless and naive as they seem to be?

Given the sheer size and significance of the unregulated credit derivative markets, this is the kind of stuff that capital market crashes are made of

From Doug Kass at thestreet.com comes this article on what's going on in the credit markets. Yes, 99% of people in America don't know, don't care and don't want to be bothered with all this financial mumbo jumbo CDO credit risk subprime blather...

But oh, how they will be bothered. How they wish they had paid attention.

The credit spigot is being turned off. No more cash-out refis. No more cash-back-at-close flips. No more Hummer H2s. No more trips to Greece. No more no-money-down-do-doc-interest-only loans. No more bidding wars on condos. And no more price appreciation on homes.

Damn this has all been prewritten, so there should be no surprises for HP'ers. It's like we have the playbook. And actually, we do.

The Next Shoe to Drop?

With the contagion that started in subprime mortgage lending now spreading to other mortgage tranches, as reported here, the next shoe to drop might well be in the broader securitization market.

Not only will older, less-protected packaged securitizations and other derivatives decline in price in a readjustment, but the entire credit securitization chain will become less profitable to industrial companies, mortgage lenders, banks and brokerages.

Consider what has occurred and is now occurring in subprime. The prices of mortgages are rising as the originations become less profitable for the financial intermediaries that serve the market. In turn, housing affordability worsens, delinquencies and foreclosures rise, housing inventories build further, and home prices drop in the second leg down for residential real estate.

This is the vicious cycle and contagion in credit markets.

Now I am hearing stories of plunging demand for CDO tranches and sponsors taking large fee-haircuts before deals can be sold. It is in the mixed asset class of CDOs where the contagion of subprime might soon spread as buyers recoil from sharper-than-anticipated losses in the mortgage market.

Credit spreads are flying open and the vicious cycle of credit has begun as the evaluation of risk is reassessed.

Given the sheer size and significance of the unregulated credit derivative markets, this is the kind of stuff that capital market crashes are made of.

Too big to fail? Moody's thinks the US government won't let JP Morgan and more banks go belly up. Get the dollar printing presses ready!

Oh dear god this seems like a joke, but it's not. Moody's upgraded some of the banks about to get slaughtered by the subprime meltdown and credit crunch, thinking the US government won't let them fail.

I thought Fannie and Freddie were bad enough - but now the taxpayers would bail out banks that have made horrific decisions during the Late Great Housing Bubble and resulting collapse?

Wow.

Get ready America for days like you've never seen. You live in interesting times. Thanks HP'ers for the link.

JPMorgan Chase, Large U.S. Banks Have Ratings Raised by Moody's

JPMorgan Chase & Co., Bank of New York Co. and State Street Bank & Trust Co. gained higher credit ratings from Moody's Investors Service Inc., which said the U.S. government would back the banks if they faced default.

Moody's announced new guidelines for bank credit ratings last month that consider financial strength along with any support companies may get from government and financial institutions if they get into serious trouble. Such backing might be offered if regulators conclude the effects of a failure would be catastrophic for the nation's economy, a concept rooted in banks' financial woes in the 1980s.

``People already feel like they're too big to fail,'' said Jonathan Hatcher, senior research analyst for corporate bonds at Delaware Investments, which holds $98 billion in corporate bonds.

Give us your top five housing crash short plays

Here's my five

Countrywide (CFC)

Accredited Home Lenders (LEND)

Fisrt Fed Financial (FED)
Fannie Mae (FNM)

Homebuilders Index (XHB)

Of course, shorting is a very dangerous game - you can lose everything, especially if you take out put options (which I prefer to shorting). But with the writing on the wall, ask yourself, if you're in the market, why not make money off of companies with bad business models or terrible future prospects? Why be long 100% of the time with the rest of the sheeple?

Note: I'm short CFC and LEND today