U.S., Banks Near A Plan to Freeze Subprime Rates

[c1ue]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

This will never happen. It would literally wipe out billions of dollars, as the lower tranches (who knows how high) would instantly become worthless. I don't mean mark to market worthless, I mean mark to model worthless.

Agreed, but I think everyone pretty much already acknowledges that the subprime based derivatives are junk already.

At this point it is about preserving the AAA tranches, and this bill might very well do so.

[touchring]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

The majority of MBS are in the hands of European investors and banks aren't they?

This will never happen. It would literally wipe out billions of dollars, as the lower tranches (who knows how high) would instantly become worthless. I don't mean mark to market worthless, I mean mark to model worthless.

Without resets, the models are junk. That amount of defaulting MBS's would move us from systemic problems to systemic failure in about 90 seconds.

[GRG55]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

The majority of MBS are in the hands of European investors and banks aren't they?

Actually it seems to be stashed in the most interesting places. Apparently Narvik, one of the communities involved, is north of the Arctic Circle. Who knows where the next pop in this little bubble will come from...


Townships caught up in international credit crisis


Several small townships in northern Norway went along with a securities firm's advice and invested as much as NOK 4 billion in complicated American commercial paper sold by Citibank. They now risk losing it all.

The township politicians are both embarrassed and angry at the financial advisers who they now claim led them astray. "They think we're a bunch of small-town fools," one local mayor told newspaper Dagens Næringsliv.

The politicians remain ultimately reponsible, though, and voters aren't particularly happy as news emerges about what's become of a large chunk of their public funds.

Officials in four northern Norwegian townships (Narvik, Rana, Hemnes and Hattfjelldal) went along with an alleged recommendation by Terra Securities to invest a total of NOK 451 million in what they're now calling "high-risk structured products" offered by Citibank and sold for Citibank by Terra.

The American commercial paper was also tied to bonds issued by local governments in the US, and Norwegian Broadcasting (NRK) reported that hedge funds were involved. To boost returns, the Norwegian townships also borrowed NOK 3.5 billion to invest in Citibank's products, which later lost as much as 50 percent of their value because of the US credit crunch.

News started leaking out about the troubled investments when the townships were ordered to pay in millions more, to satisfy guarantee requirements. Mayor Asgeir Almås in Hattfjelldal feels cheated.

"I wonder whether Terra had such a lucrative deal with Citibank that they found some fools to earn quick money," Almås told newspaper Aftenposten. His little township with a population of just 1,500 but solid revenues from power plants, invested NOK 100 million and since has paid in another NOK 20 million in guarantees.

'Sorry'
Terra officials say they're sorry about the losses, but claim the townships are viewed as "professional players" in the financial markets and must also take responsibility "for the investments they choose to make."

The politicians claim they "asked all the questions we could" about risk levels, not least those tied to currency valuation. The US dollar is also extremely weak at present against the Norwegian kroner, reducing relative values of US holdings.

While the finger-pointing continues, the townships are obligated to put what some fear is good money after bad. Norwegian townships that are suddenly relatively wealthy on energy revenues are also learning to be more cautious, as they face constant, complicated investment offers from foreign institutions.

[jk]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

Actually it seems to be stashed in the most interesting places. Apparently Narvik, one of the communities involved, is north of the Arctic Circle. Who knows where the next pop in this little bubble will come from...


Townships caught up in international credit crisis


Several small townships in northern Norway went along with a securities firm's advice and invested as much as NOK 4 billion in complicated American commercial paper sold by Citibank. They now risk losing it all.

The township politicians are both embarrassed and angry at the financial advisers who they now claim led them astray. "They think we're a bunch of small-town fools," one local mayor told newspaper Dagens Næringsliv.

The politicians remain ultimately reponsible, though, and voters aren't particularly happy as news emerges about what's become of a large chunk of their public funds.

Officials in four northern Norwegian townships (Narvik, Rana, Hemnes and Hattfjelldal) went along with an alleged recommendation by Terra Securities to invest a total of NOK 451 million in what they're now calling "high-risk structured products" offered by Citibank and sold for Citibank by Terra.

The American commercial paper was also tied to bonds issued by local governments in the US, and Norwegian Broadcasting (NRK) reported that hedge funds were involved. To boost returns, the Norwegian townships also borrowed NOK 3.5 billion to invest in Citibank's products, which later lost as much as 50 percent of their value because of the US credit crunch.

News started leaking out about the troubled investments when the townships were ordered to pay in millions more, to satisfy guarantee requirements. Mayor Asgeir Almås in Hattfjelldal feels cheated.

"I wonder whether Terra had such a lucrative deal with Citibank that they found some fools to earn quick money," Almås told newspaper Aftenposten. His little township with a population of just 1,500 but solid revenues from power plants, invested NOK 100 million and since has paid in another NOK 20 million in guarantees.

'Sorry'
Terra officials say they're sorry about the losses, but claim the townships are viewed as "professional players" in the financial markets and must also take responsibility "for the investments they choose to make."

The politicians claim they "asked all the questions we could" about risk levels, not least those tied to currency valuation. The US dollar is also extremely weak at present against the Norwegian kroner, reducing relative values of US holdings.

While the finger-pointing continues, the townships are obligated to put what some fear is good money after bad. Norwegian townships that are suddenly relatively wealthy on energy revenues are also learning to be more cautious, as they face constant, complicated investment offers from foreign institutions.

i'm impressed that these idiots not only put all their official holdings in crap, they leveraged up 8:1!

[rj1]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

I've been reading a couple sites on this (Calculated Risk, Minyanville, and Global Econ Analysis). And this is the best I can make out. Feel free to add or critique.

http://globaleconomicanalysis.blogsp...cker-trap.html

"Those eligible have to have a LTV higher than 97%. Many of these people have negative equity. They can't refi - they can't sell - and when their loan resets, they probably can't make the payment. They are stuck, and foreclosure is the only way out. This is a plan for investors! The idea is to get people to keep making mortgage payments on a loan that is worth more than the collateral. A neat trick! If these "homeowners" really crunched the numbers, they would realize it's better to walk away, and rent for less money, rather than to keep making the mortgage payment. The plan is sold as helping homeowners. It is designed to help investors." Sucker Trap For Homeowners While there is nothing new or shocking in the statement about who the plan was designed to help (we all knew who the plan was designed to help before), this is even a bigger sucker trap than I first thought. This plan was purposefully and carefully constructed to help virtually no one but lenders. The very last thing the lenders want is to foreclose on homes that are hugely underwater. Here is the full criteria for who can apply: -First lien owner occupied residential adjustable rate loans (ARMS) with initial fixed rate for 36 months or less. -Must be originated between 1/1/05 and 7/31/07 and included in securitized pools with reset date between 1/1/08 and 7/31/10. -The loan must be current. Current means not more than 30 days delinquent and not more than one 60 days delinquent in last 12 months. -Loan to value must be greater than 97%. (i.e. person must have less than 3% equity) -FICO Score must be less than 660. -FICO score cannot be more than 10% higher than origination. -Servicer must determine that owner cannot afford higher payments. Fix on top of fix on top of fix are being proposed and none of them will work because it is in the best interest of those underwater on their loans to make sure the plan fails. Now that the details are finalized, we can clearly see that very few people percentage wise will be helped by this bailout proposal. The real damage lies ahead with pay option arms, Alt-A, and second mortgages.

This was designed for home-"owers" that it made financial sense for them to just leave the house, give it back to the bank in foreclosure, and they could walk away and rent somewhere just as nice for possibly even less money than their monthly home payment.

That's the only reason I can think there's a maximum equity provision. This reform is solely for people would have no equity (no down payment) so they had no skin in the game. Why else would that be there?

I wonder what will happen if a home-ower decides to go into foreclosure anyway and decides to not be a part of this plan?

[touchring]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

I wonder what will happen if a home-ower decides to go into foreclosure anyway and decides to not be a part of this plan?

That would mean plan backfires.

[rj1]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

That would mean plan backfires.

Well...yeah. I guess I should've made it sound more rhetorical.

Anyway, good article. Recommend it for everybody. http://blogs.marketwatch.com/greenbe...om-an-insider/

[touchring]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

By the way i had a thought. Since freezing interest rates will make the MBS worthless, why not just writeoff the mortgages? Then no more subprime problem?

[jk]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

Anyway, good article. Recommend it for everybody. http://blogs.marketwatch.com/greenbe...om-an-insider/

great write-up at the link. i thought i'd already heard it all. there's even more...:eek:

[bill]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

The gov. should not intervene in the market. Let the real estate market crash and investors with cash will stampede to purchase real value and clean up all this mess in a matter of a few years.

Example, a home originally purchased at $425k with no money down and arm financing (3%). The real value of the same home today is $210k or less in real market conditions.
An investor could purchase the home for $180k+- cash, flip it for 210K and carry the paper for 10% interest. The upside down $425k home owner could walk and purchase the same home for 210K with approximately the same payment and build future equity. Borrower’s (210k purchaser) credit damage from 425k foreclosure will be overlooked, it always is and keeps the chain of payments going. Investors will be enticed to fund at higher interest rates and if borrower defaults the home has secure equity to protect the note holder.
If the gov. thinks they can secure note investors and markets by freezing certain loan portfolios they are wrong and a $425k note holder with market value of $210k will eventually face real market conditions.

[jk]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

The gov. should not intervene in the market. Let the real estate market crash and investors with cash will stampede to purchase real value and clean up all this mess in a matter of a few years.

Example, a home originally purchased at $425k with no money down and arm financing (3%). The real value of the same home today is $210k or less in real market conditions.
An investor could purchase the home for $180k+- cash, flip it for 210K and carry the paper for 10% interest. The upside down $425k home owner could walk and purchase the same home for 210K with approximately the same payment and build future equity. Borrower’s (210k purchaser) credit damage from 425k foreclosure will be overlooked, it always is and keeps the chain of payments going. Investors will be enticed to fund at higher interest rates and if borrower defaults the home has secure equity to protect the note holder.
If the gov. thinks they can secure note investors and markets by freezing certain loan portfolios they are wrong and a $425k note holder with market value of $210k will eventually face real market conditions.

the problem with your scenario, bill, is that it producers the "wrong" winners [savers] and the "wrong" losers [banks and investment funds]. thus, although it makes great sense, it will never happen.

[grapejelly]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

the real problem is homeloaners who have negative equity, who were allowed to borrow money with little or no money down, en masse. These homeloaners will find it expedient to walk away.

A report came out that Freddie Mac has 1 out of 7 loans that include a piggyback loan, a junior loan meaning the homeowner at this point has no equity, most likely because they borrowed more than 80% of their equity when they got the loan -- although 80% is the supposed limit loan-to-value for Freddie.

It isn't about subprime. It's about people not wanting to keep paying on a house in which they are under water and getting more so all the time.

And that's prime, alt-a and subprime. It's everyone who a) bought in the last 3 years or so, or b) who did one or more cash-out refis in the last 3 or 4 years.

[bill]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

the problem with your scenario, bill, is that it producers the "wrong" winners [savers] and the "wrong" losers [banks and investment funds]. thus, although it makes great sense, it will never happen.

In Mesa Arizona today a broker friend of mine attended a real estate auction.
Here’s the site: http://www.hudsonandmarshall.com/calendar.asp
Homes that sold for $150-$180 per square foot 2-3 years ago are now selling at the auction for $60-$90 per square foot.
Cash, as is and 30 day close. I tell you the truth I’m a little bit shocked the price has come down so fast. I will be attending the Vegas auction and give a update then.

[bill]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

In Mesa Arizona today a broker friend of mine attended a real estate auction.
Here’s the site: http://www.hudsonandmarshall.com/calendar.asp
Homes that sold for $150-$180 per square foot 2-3 years ago are now selling at the auction for $60-$90 per square foot.
Cash, as is and 30 day close. I tell you the truth I’m a little bit shocked the price has come down so fast. I will be attending the Vegas auction and give a update then.

http://www.azcentral.com/realestate/...es1214-ON.html

Canadians snap up American homes

The Associated Press
Dec. 14, 2007 12:00 PM
CHANDLER, Ariz. (AP) - Two hours after his flight landed in Phoenix, Calgary resident Doug Farley already was cruising the city's vast stuccoed suburbs in search of the one attraction Canadians can't seem to get enough of these days, cheap homes.

There are thousands of them here: almost new, unoccupied and dropping in value. The mortgage meltdown, combined with a surging Canadian currency, has Farley - and many of his countrymen - dreaming of winter golf on grass that's always green.

"My dollar's the same as your dollar, finally," Farley said, grinning as he peered through a pool fence at a sparsely populated condominium complex in Chandler, a Phoenix suburb.

For moderate-income Canadians like Farley, the race is on to take advantage of the "loonie," which in September reached parity with the U.S. dollar for the first time since 1976. Many are combing the Internet for anxious American home sellers and looking with an investor's eye at the condos they rented while on vacation in sunbelt states.

"Now it's more than just the snowbird coming down and staying in a condo. It's people looking for business opportunity," said Frank Nero, president of the Beacon Council, Miami-Dade County's economic development arm in south Florida.

Canadian condo-builder Solterra Group of Companies also is riding the surge in the Canadian economy as it plans to snatch large chunks of land in Las Vegas. Michael Bosa, the company's vice president for development and acquisition, said the loonie has bolstered his company's bids.

"We're looking now aggressively," Bosa said. "We think we'll see more opportunities in the next six to eight months."

In Arizona, Jason Sirockman of Edmonton, Alberta, said he watched as home owners flooded the market with 58,000 homes, more than twice the amount in 2005 when home values peaked.

Now's the time to buy, he said. Alberta, a three-and-a-half-hour flight from Phoenix, is experiencing a modern-day gold rush from booming work in its vast oil sands.

"Fifteen of my friends are on buying trips down here, and we're all cheap," Sirockman said. He brought his family to Scottsdale this month while he submitted a lowball all-cash offer for a three-bedroom home.

"I don't want to take advantage of a guy who's having trouble in the market and is losing his shorts," Sirockman said. "But I have no problem with a guy from California who bought on spec and has five houses in Arizona and never lived in them."

Single family homes and condos in the Phoenix metro area now sit an average of 99 days before getting sold. That's three times the wait for homes and four times the wait for condos compared with two years ago, according to the Arizona Regional Multiple Listing Service.

The market has shifted totally in the buyer's favor, especially those offering cash, said Jeff Russell of Alberta. Last month, Russell snapped up a patio home next to a golf course in Scottsdale with a $299,000 check. It was listed at $463,000.

"I was actually going to come down here and buy a seven-series BMW because cars are ridiculously cheap here," he said. "But I discovered that, forget cars, houses are on deep discount. I could never get anything on a golf course as nice in Canada for this type of money."

Real estate agents in Phoenix, especially those with Canadian ties, are hustling to reach potential buyers up north while the American housing market and the U.S. dollar continue to slump.

Rick Morielli, a former real estate broker from Toronto, received his green card in November, posted a Canadian realty Web site, took out some newspaper ads in Canada, and already he has about a dozen clients looking for homes.

"There's a real Wow' factor here for Canadians," said Morielli, who now lives in Phoenix.

"When I take them to a brand new subdivision, and for $210,000 can get them four bedrooms, 2,000 square feet, all appliances, brand new, that's something they haven't been able to buy in Canada for 10 or 15 years. In my opinion, everyone should be buying now."

Mark Dziedzic, a former financial planner from Toronto, now sells homes full time in Arizona and holds seminars in Canada to push the American housing market on fellow Canucks. Dziedzic said he's had to hire more staff at his office to keep up with the influx of Canadian investors.

"When (the Canadian dollar) hit a dollar ten, it really created a real buzz for Canadians, not only those looking to buy second homes but we're also seeing it from buying purely from an investment standpoint," Dziedzic said.

Still, with so many homes on the market, the interest by Canadians isn't about to fix the housing slump in Arizona, real estate consultant Elliott D. Pollack said.

"You have a massive oversupply in the face of a lower demand," Pollack said. "And you're going to have to work off those excess units. And to do that you'll need two or three years."

That's fine with investors like Farley, who are still learning the neighborhoods.

As he searched for his new winter home, Farley kept an eye out for condos near a pool. When it got cold in Calgary, that's where his family would be.

"I just want the ability to go outside, you know, the ability to go for a walk," Farley said. He left for Calgary with a few strong choices, but he didn't bid on anything.

Sirockman also returned to Canada without a house after the owner of the Scottsdale home turned down his offer. No worries. Sirockman told the seller there were a thousand other homes like his on the market, and someone was going to deal.

As he was about to get on the flight back to Edmonton, Sirockman called his friends, and they told him it's 28 below zero back home.

"That's what I'm flying into," he said with a sigh. "I brought a big down-filled jacket with me. I'm looking like an idiot getting onto the plane."

[c1ue]

Re: U.S., Banks Near A Plan to Freeze Subprime Rates

Time will tell if they are being smart or really, really stupid.