Selling Shit
"As Defaults Rise, Washington Worries" by VIKAS BAJAJ
During the summer’s credit crisis, investors concluded that the default rates on subprime mortgages made last year would probably prove to be the highest in the industry’s history.
But there now appears to be another contender for that dubious honor: loans made in the first half of this year.
Borrowers who took out loans in the first six months of 2007 are falling behind on payments faster than homeowners who took out loans last year, according to a report by Friedman, Billings, Ramsey, an investment bank based in Arlington, Va. The data suggested that more Americans could lose their homes and that the housing market’s troubles might persist longer than many analysts have been predicting.
The report’s author, Michael D. Youngblood, a portfolio manager and analyst at Friedman, Billings, Ramsey, said that most mortgage companies and banks had not tightened lending standards for borrowers with weak, or subprime, credit until July or August, even though early this year regulators, analysts and mortgage investors knew that the easy lending policies of 2005 and 2006 were producing high default rates.
“There are $10.6 trillion of mortgage loans outstanding in the U.S., and even if the brakes had been slammed, it was going to take a long time to slow this locomotive down,” said Mr. Youngblood, who has researched home lending for more than 20 years. “And I don’t see that the brakes were slammed on or that the engineer had a new track to follow. That track only now seems to be appearing.”
He noted that Countrywide Financial, the nation’s largest lender whose practices are often emulated by smaller companies, did not significantly tighten standards until August. And it was only in mid-July that Moody’s Investors Service and Standard & Poor’s, the large ratings agencies, said they would make major changes in the assumptions that they use to evaluate pools of home loans sold to investors.
As of August, default rates on adjustable-rate subprime mortgages written in 2007 had reached 8.05 percent, up from 5.77 percent in July, according to Mr. Youngblood’s analysis of pools of home loans put together by Wall Street banks and sold to investors. By comparison, only 5.36 percent of such loans made last year had defaulted by August 2006. Default rates on fixed-rate subprime mortgages were lower, but were rising at a similar pace.
Data analyzed by Moody’s confirms the trend Mr. Youngblood has identified. Executives at Moody’s say they are monitoring the performance of recent loans, but were not yet ready to discuss their conclusions.
It is unclear whether loans made in the last couple of months are stronger, because lenders were making and securitizing far fewer of them and investors have grown wary of bonds backed by subprime mortgages.
“You may not hear that much about that stuff, because it’s not seeing the light of day,” said Evan Mitnick, a managing director at Westwood Capital, a boutique investment bank in New York.
In the first six months of the year, Wall Street securitized $215 billion in subprime loans, down 23 percent from the comparable period a year earlier, according to Friedman, Billings, Ramsey. By the end of August, the total had dropped by 33 percent from the comparable eight months of 2006.
The recent weakness in job growth and falling home prices in many parts of the country have probably contributed to the higher default rates on loans from early this year, specialists say.
Job losses in the housing industry have put pressure on the economies of formerly fast-growing states like Arizona and Florida. And declining home prices have made it harder for borrowers to refinance loans, especially in cases where the buyers could afford the homes only with the help of the low introductory rates on adjustable mortgages.
Those borrowers are expected to encounter further strain in the months and years ahead as their loans are reset to higher variable rates. When they try to refinance their mortgages, many of them will face stricter lending standards. Many lenders are now requiring borrowers to provide documentation of their incomes, and they will not lend more than 80 to 90 percent of a house’s value.
A survey of 500 borrowers with adjustable-rate loans released yesterday in Cleveland showed that the resetting of rates will put a significant strain on homeowners.
Among borrowers whose rates have already been reset, 41 percent said they were worried about their ability to make payments, compared with 18 percent of borrowers whose rates had not been reset yet. Nearly three-quarters of families with incomes less than $50,000 a year said that an increase in their rates would hurt them, compared with 40 percent with incomes above $50,000.
The survey was conducted by Peter D. Hart Research Associates on behalf of the A.F.L.-C.I.O., which is setting up a telephone help line for troubled homeowners.
Financing homes with adjustable mortgages was popular during the housing boom because the borrowers could enjoy lower rates in the first two or three years and then refinance. That worked when house prices were rising fast, but now that prices are flat or falling, it is proving unsustainable, said Keith Ernst, a senior policy counsel at the Center for Responsible Lending.
“Subprime lending had problems with underwriting for a while, and it was evident in weak housing markets — just ask the people in Cleveland,” Mr. Ernst said. “Now that the weakness is widespread, it has pulled the covers on all subprime loans.”
Pushing Paper
"3 Major Banks Offer Plan to Calm Debts in Housing" by FLOYD NORRIS
The biggest banks in the United States, with active encouragement from the Treasury Department, unveiled a plan yesterday to keep the housing-related debt crisis from worsening.
The plan calls for the banks to create a new financing vehicle to try to restore confidence and reduce the risk of a market meltdown by propping up an important part of the debt markets. But the banks hope to take minimal risk and avoid actually investing any of their own money.
[If that is true, who is bailing them out?
ME and YOU?!?! AGAIN?!?!]
Although credit markets have calmed in recent weeks, and the stock market remains near record highs, some securities are almost impossible to sell anywhere near their previous prices. There is fear that allowing those securities to plunge in price could disrupt credit markets, alarm investors in everything from hedge funds to money market funds, and perhaps make it harder to borrow money, making a recession more likely.
[I thought we had a "free market."
Guess not.]
If the banks’ initiative works as planned, many investors that helped to finance risky loans — including supposedly safe money market funds — will be spared distress. And the banks will collect fees for little more than promising to make loans if no one else will.
“The idea is to avoid a fire sale of assets,” said one banker involved in the initiative, who asked not to be identified because negotiations on its terms are continuing.
The new entity, called a Master Liquidity Enhancement Conduit, or M-LEC, could raise as much as $200 billion or more through the issuance of its own securities, and use the money to buy securities that otherwise might be dumped on the market.
[Almost sounds like CORPORATE SOCIALISM, doesn't it?]
The announcement by Citigroup, JPMorgan Chase and Bank of America came on the same day that Citigroup reported a sharp fall in third-quarter profits, with write-offs on troubled securities that were substantially larger than it had forecast just two weeks ago. Other financial institutions, including Merrill Lynch, have also had to take substantial write-offs.
[You get tired of liars everywhere you turn like I do, readers?]
Though yesterday’s move was meant to reassure the markets, investors reacted with doubt. The Dow Jones industrial average fell 108 points, and financial stocks were among the worst hit.
“I don’t really see that this is going to make a significant difference,” said Jan Hatzius, chief United States economist at Goldman Sachs. “It seems a little more like a P.R. move, frankly.”
Mr. Hatzius said he wondered “why this is going on when previously the official word was that things were getting better.”
[Because of LIARS?]
The market upheaval that took hold in July arose from securities that were supposed to be safe — and were certified as such by bond rating agencies — even though they financed risky mortgages. Those securities would not default unless a large portion of the underlying loans went bad, and that was deemed unlikely. But in the wake of the subprime mortgage crisis, questions have arisen about whether the rating agencies were too optimistic.
The conduit could work brilliantly if it turns out that the collapse in the market value of the securities represents market panic rather than an accurate assessment of the likelihood of eventual default. If this is the case, then prices will eventually return to normal and this new creation will have bought time for that to happen.
In the meantime, it is hoped that what amount to bank guarantees of some debt — coupled with the fact the Federal Reserve is the lender of last resort for banks — will persuade investors like money market funds to buy securities issued by the new conduit.
If they will not buy, or if the securities really do not prove to be worth face value, however, little will have been changed.
Details remained in flux yesterday, but some were not persuaded that the new structure would really do much. Josh Rosner, an expert in mortgage-backed securities at Graham Fisher, an independent research firm in New York, questioned why the banks needed to establish such a vehicle.
“If they really believe these are good assets being mispriced in the market,” he said, the banks could just buy them and wait for the asset values to recover. “This raises the question of whether the banks are doing this just to avoid taking their losses.”
But some hailed the move as a way of preventing a crisis without directly involving the government, and said it reduced the so-called moral hazard that comes when the government bails out those who made risky bets, thus encouraging more foolish bets in the future. In this case, the Treasury encouraged the talks, but neither offered to put up money nor dictated the agreement.
“I don’t see this as a bailout,” said James Paulsen, chief investment officer at Wells Capital Management. “There is no public money involved in this. The government’s role here is facilitating discussion among private players to take care of this themselves. If the private players can find a way to help alleviate this, then why shouldn’t they?”
[As long as they don't lay it all on our backs, fine!
However, if they are going to just seize properties and foreclose on people, all the while protecting their own bank accounts, FUCK YOU!!!!]
At issue is a borrowing crisis facing a group of institutions known as structured investment vehicles, or SIVs, that were little known even to many on Wall Street until the credit crisis erupted this year. These vehicles essentially are private banks, albeit ones without the benefits of deposit insurance or the right to borrow from the Federal Reserve. They lend long term, and borrow short term. If they cannot borrow money, they are in trouble.
The vehicles, often started by banks like Citigroup, were financed by issuing commercial paper, a form of short-term credit, for 90 percent or more of the value of their securities. The expectation was that the cushion of 10 percent or less would be enough so that the commercial paper could readily be sold at low interest rates, often to money market funds. Because commercial paper usually matures within months, not years, it is necessary to sell new commercial paper as the old paper is paid off.
Now, however, it is practically impossible to sell such paper, and the SIVs are faced with the threat of having to sell many of their securities into a market with few buyers. “It is in nobody’s interest to see a disorderly sale of assets by the SIVs,” said Nazareth Festekjian, a Citigroup managing director who was involved in planning the conduit.
The proposal came about from discussions among the banks and the Treasury Department, in which one idea considered was for the banks to just purchase the commercial paper issued by the SIVs. But that was rejected by some bankers, a person involved in the talks said, and the conduit idea was developed.
The new conduit will offer to buy many of the securities owned by SIVs, but at a cost to those vehicles. First they will have to pay a fee for the right to sell anything to the conduit, and part of that fee will be passed on to the banks, increasing their profits.
[So as they foreclose on YOU, they will be "INCREASING THEIR PROFITS!"
What a RIGGED SHELL GAME this SHIT ECONOMY is!!!!!]
Most of the proceeds will be paid to the conduits in cash, which they can use to redeem commercial paper. But a part of the payment, perhaps 5 percent of it, will instead be in junior securities issued by the conduit.
Because those securities would bear the first losses suffered by the conduit, it is the SIVs, as a group, that will take the first risk that the securities turn out to be worth less than the conduit pays.
“The same folks who brought you the SIV in the first place are now repackaging them in yet another conduit," said Ed Yardeni, president of Yardeni Research. “I guess they figured there’s strength in numbers.”
[Fox gonna guard the henhouse, 'eh? Great.]
The conduit would raise money by selling what it calls senior securities to investors who would be assured of payment unless losses grew so large that the junior securities were wiped out. The rest of the money would come from selling commercial paper, with the banks promising to buy that paper if no one else would."
[And if they can't get your property one way, they simply get it another way:
Insurance Insult
"Home Insurers Canceling in East" by PAUL VITELLO
GARDEN CITY, N.Y., Oct. 15 — It is 1,200 miles from the coastline where Hurricane Katrina touched land two years ago to the neat colonial-style home here where James Gray, a retired public relations consultant, and his wife, Ann, live. But this summer, Katrina reached them, too, in the form of a cancellation letter from their home-insurance company.
The letter said that “hurricane events over the past two years” had forced the company to limit its exposure to further losses; and that because the Grays’ home on Long Island was near the Atlantic Ocean — it is 12 miles from the coast and has been touched by rampaging waters only once, when the upstairs bathtub overflowed — their 30-year-old policy was “nonrenewed,” or canceled.
[What fucking good are these bloodsuckers if they aren't going to pay out?
What an ASS-FUCKING SCAM JOB!!!!
Insurance companies just want to ACCUMULATE CAPITAL!!!
That's what they exist for; not to HELP YOU, stoo-pido Amurkn!]
The Grays signed with a new company, but their case attracted the attention of consumer advocates and, in turn, the New York insurance commissioner, Eric R. Dinallo.
Mr. Dinallo’s sharp rebuke last month of the Grays’ company, Liberty Mutual Fire Insurance Company, reflected a shift in how public officials view a new reality in the homeowners’ insurance business, advocates say.
In the last three years, more than three million homeowners have received letters like the Grays’ as insurance companies, determined to avoid another $40 billion Katrina bill, have essentially begun to redraw the outline of the eastern United States somewhere west of the Appalachian Trail.
Public officials in Southern states from Florida to Texas have been fighting insurance carriers for years over rising rates and withdrawal of services, but officials in the Northeast have only recently joined the fray.
Companies including Allstate, State Farm and Liberty Mutual have “nonrenewed” policies not only in hurricane-battered places like Florida and Louisiana, but in New York and other Northern states that have not seen hurricanes in years. Since last year, those three companies and others have turned down all new homeowners’ insurance business in New Jersey, Connecticut, Rhode Island, Maryland, Massachusetts and the eight downstate counties of New York.
[It's not about you, homeowner; it's about MAKIN' $$$$$$!!!!]
An independent insurance agents’ group puts the Grays among about 50,000 residents of the New York metropolitan area — and about one million homeowners in the Mid-Atlantic and New England states — whose policies have been canceled since 2004. While most homeowners have been able to find coverage with other major insurers, or with smaller companies, in most cases it is at higher rates and with larger deductibles.
The companies say they are obliged to avoid undue risks where they see them, and to remain solvent. “Considering what happened between 2003 and 2005,” said Robert P. Hartwig, president of the Insurance Information Institute, an industry lobbying group, “and considering that the best meteorological minds are telling us that for the next 15 to 20 years hurricane activity will be heavier than normal, if we didn’t do something to reduce our exposure, we’d be out of business.”
[Well, WHAT FUCKING GOOD IS YOUR "BUSINESS" when you don't do what your business is supposed to do?
How much fucking profit you guys pull down last year, anyway?
While you denied Americans payment and coverage?]
In response to a growing torrent of complaints, state officials and lawmakers have lately begun to push back, if gingerly, against the industry, which they see as overreacting to the hurricane threat in the Northeast. “My concern is that this situation is being manipulated by the insurance companies in order for them to get higher rates,” said State Senator Kenneth P. LaValle, who calls the cancellation of policies in his eastern Long Island district “more than a problem — it is a crisis.”
Mr. Dinallo, the commissioner, has focused his attention on the law: It was a single line in the Liberty Mutual letter sent to the Grays that prompted him to issue his rebuke. The line noted that one consideration in dropping their policy was that they did not have car insurance with the company.
[So, FUCK YOU, hard-working, stoo-pido Amurkn!
Go EAT SHIT in the woods!!!]
That, Mr. Dinallo said, is illegal. Predicating one policy on another, or so-called “tie-in business,” is a violation of state insurance law, he said. Liberty Mutual said the tie-in was a secondary issue, but in response to Mr. Dinallo’s warning, Liberty Mutual, State Farm and the largest insurer in the state, Allstate, agreed to stop the practice.
Earlier this year, Richard Blumenthal, the Connecticut attorney general, also challenged insurers’ tactics, subpoenaing records from nine insurance companies that were requiring homeowners to install storm shutters if they wanted to keep their policies. “The insurers are making record profits,” Mr. Blumenthal said in an interview, “and the dire predictions of disastrous hurricanes, fortunately, have been very wrong — fortunately for everyone, including the insurers.”
[There is my answer, readers!
You ANGRY yet?]
Meanwhile, heated public hearings were held this year in the Rhode Island General Assembly about the lack of homeowners’ insurance in coastal areas, which include most of the state.
In Massachusetts, New Jersey and New York, lawmakers and regulators this year proposed requiring all insurance companies doing business in the states to set aside billions of dollars to help defray losses from future catastrophic storms.
At a public hearing of the New York Senate Insurance Committee last Tuesday, Senator Charles J. Fuschillo Jr. said the retreat of major home insurers had hurt the housing market. (Home insurance is required by all banks that make home loans.)
“We have people who cannot buy a house because they can’t find insurance,” he said.
Amy Bach, executive director of United Policyholders, a California-based consumer advocacy group, has watched the situation in the East with both professional and personal interest, since the policy on her parents’ Long Island home was recently canceled. Crisis or not, she said, the pattern is familiar.
“Wide-scale nonrenewal has been the knee-jerk reaction of the big insurance companies after every major disaster: hurricanes, earthquakes, wildfires,” she said.
Florida set the pattern for states in picking up the risk shed by major carriers. Its state-created Citizens Property Insurance Corporation, the insurance pool for those unable to find home insurance anywhere else, has become the state’s largest homeowners’ insurer, with 1.3 million policies.
But Massachusetts, last hit by a moderate hurricane in 1991, has also found itself in the insurance business. Its high-risk pool has doubled in size in the last five years, reaching 200,000 policies this year, which makes it the largest single homeowners’ insurance carrier in the state. On Cape Cod, 44 percent of homeowners are covered by the plan.
In New York, Connecticut and New Jersey, the number of people covered by state insurance pools has remained relatively low. The New York plan, known as the New York Property Insurance Underwriting Association, carries about 70,000 policies, most for homes in coastal areas; this year, officials said, the state pool was expecting 10,000 more.
To some extent, insurance brokers in the New York metropolitan area have closed the gap left by the major carriers by finding policies with subprime insurers, also known as the excess and surplus market. Figures provided by the Excess Line Association of New York, a group representing those insurers, show that 7,689 such policies were sold last year, and almost as many, 7,456, in the first seven months of 2007.
Robert J. Hunter, director of insurance for the Consumer Federation of America, said the extent of the retreat by major insurers “will depend a lot on what happens this year, hurricane-wise.”
Insurance companies have condensed their projections of risk, he said.
“They used to project 20 years in the future, but now it is more like 4 or 5,” Mr. Hunter said, a practice that has driven the current pull-back along the Northeast coast, where a big hurricane is overdue, according to computer analysis.
Mr. Hartwig, of the Insurance Institute, said it was more complicated than that. “What insurers are worried about is not just a hurricane in New York, but hurricanes in New York and Florida at the same time,” he said.
Betty Clark, a retired waitress living on a fixed income in a modest house where she raised her children in Eastham, Mass., on Cape Cod, said she had no idea how the tussle between insurance companies and public officials would play out. But after years of paying $742 a year, her home insurance doubled last year, to $1,440, which she would not be able to afford if not for some help from her children.
“I’ve never made a claim in all these years,” she said by telephone. “And yet, here it’s possible I’ll lose my home,” she said.
And not to a hurricane, she added."
[Yup, the Globalist elite assholes who are destroying this country are going to just TAKE PROPERTY AWAY for NO REASON!!!
Just as Alex Jones and the forces of freedom have been saying!
So when do you start believing Alex, readers, instead of slimeball economists who benefit from the corruption and looting?
When you are sitting in the woods eating shit?
