The Mortgage Lender Implode-O-Meter
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Freddie Mac finally jumps onboard the loan standard tightening train ...
(Implode O Meter update: 27)
http://www.marketwatch.com/news/sto...x?guid={3F839423-9407-4ED0-9351-4999979A647C}
Freddie Mac toughens subprime standards
By Greg Morcroft, MarketWatch
Last Update: 9:32 AM ET Feb 27, 2007
NEW YORK (MarketWatch) -- Government-sponsored mortgage marketer Freddie Mac is the latest company to weigh in on the growing concern over lending to unqualified homebuyers, saying Tuesday it's tightening its standards for buying mortgages held by such borrowers.
Freddie Mac said it would start enforcing the new standards after Sept. 1, 2007.
Shockwaves have been rippling through financial markets as more signs emerge that relaxed lending standards during the housing boom of recent years are leading to escalating defaults and rising losses for lenders and owners of securities backed by such loans.
The latest concern was sparked a few weeks ago, when banking giant HSBC Holdings (HBC) said its bad-debt charges will be 20% higher than forecast, primarily reflecting deterioration for U.S. lender Household.
Among smaller lenders, the credit crunch in the market for low-end mortgages has left companies specializing in these subprime loans at the mercy of big financial institutions. Several have already filed for bankruptcy.
For its part, Freddie Mac said Tuesday that it would stop buying those mortgages that have "a high likelihood of excessive payment shock and possible foreclosure." Instead, the company plans to buy only subprime adjustable-rate mortgages, and securities backed by such loans, that have been qualified at the fully indexed and fully amortizing rate.
Freddie Mac also said it would limit the use of loans that don't require income verification or other documentation, and will recommend that lenders collect adequate escrow for taxes and insurance payments.
Moreover, the company said it's developing new fixed-rate and hybrid adjustable-rate mortgages with the aim of giving lenders "more choices to offer subprime borrowers."
The firm said its new requirements cover mortgages known as 2/28 and 3/27 hybrid ARMs, which currently make up about three-quarters of the subprime market.
Specifically, Freddie Mac said it will require that borrowers applying for these products be underwritten at the fully indexed and amortizing rate, as opposed to the initial "teaser" rate -- often several percentage points below the actual rate for most of the life of the loan.
The company also will limit use of low-documentation loans, so-called "no income verification" products in combination with the 2/28 and 3/27 hybrid arms.
In addition, the company won't purchase "no income, no asset" documentation loans and will limit so-called "stated income, stated assets" products to borrowers whose incomes derive from hard-to-verify sources, such as self-employed persons and those who participate in the cash economy, the firm said in a press release.
"There will be a reasonableness standard for stated incomes," Freddie Mac concluded.
Shares of Freddie Mac ended Monday's trading at $64.93, off 7 cents.
Separately, Freddie's sister company Fannie Mae, said Tuesday it will delay filing its annual report for 2006. In a regulatory filing, the company also said it risks being de-listed from the New York Stock Exchange if it doesn't turn in its 2005 financials report by Dec. 31 and its 2006 report by Feb. 29, 2008.
Greg Morcroft is MarketWatch's financial editor in New York.
(Implode O Meter update: 27)
http://www.marketwatch.com/news/sto...x?guid={3F839423-9407-4ED0-9351-4999979A647C}
Freddie Mac toughens subprime standards
By Greg Morcroft, MarketWatch
Last Update: 9:32 AM ET Feb 27, 2007
NEW YORK (MarketWatch) -- Government-sponsored mortgage marketer Freddie Mac is the latest company to weigh in on the growing concern over lending to unqualified homebuyers, saying Tuesday it's tightening its standards for buying mortgages held by such borrowers.
Freddie Mac said it would start enforcing the new standards after Sept. 1, 2007.
Shockwaves have been rippling through financial markets as more signs emerge that relaxed lending standards during the housing boom of recent years are leading to escalating defaults and rising losses for lenders and owners of securities backed by such loans.
The latest concern was sparked a few weeks ago, when banking giant HSBC Holdings (HBC) said its bad-debt charges will be 20% higher than forecast, primarily reflecting deterioration for U.S. lender Household.
Among smaller lenders, the credit crunch in the market for low-end mortgages has left companies specializing in these subprime loans at the mercy of big financial institutions. Several have already filed for bankruptcy.
For its part, Freddie Mac said Tuesday that it would stop buying those mortgages that have "a high likelihood of excessive payment shock and possible foreclosure." Instead, the company plans to buy only subprime adjustable-rate mortgages, and securities backed by such loans, that have been qualified at the fully indexed and fully amortizing rate.
Freddie Mac also said it would limit the use of loans that don't require income verification or other documentation, and will recommend that lenders collect adequate escrow for taxes and insurance payments.
Moreover, the company said it's developing new fixed-rate and hybrid adjustable-rate mortgages with the aim of giving lenders "more choices to offer subprime borrowers."
The firm said its new requirements cover mortgages known as 2/28 and 3/27 hybrid ARMs, which currently make up about three-quarters of the subprime market.
Specifically, Freddie Mac said it will require that borrowers applying for these products be underwritten at the fully indexed and amortizing rate, as opposed to the initial "teaser" rate -- often several percentage points below the actual rate for most of the life of the loan.
The company also will limit use of low-documentation loans, so-called "no income verification" products in combination with the 2/28 and 3/27 hybrid arms.
In addition, the company won't purchase "no income, no asset" documentation loans and will limit so-called "stated income, stated assets" products to borrowers whose incomes derive from hard-to-verify sources, such as self-employed persons and those who participate in the cash economy, the firm said in a press release.
"There will be a reasonableness standard for stated incomes," Freddie Mac concluded.
Shares of Freddie Mac ended Monday's trading at $64.93, off 7 cents.
Separately, Freddie's sister company Fannie Mae, said Tuesday it will delay filing its annual report for 2006. In a regulatory filing, the company also said it risks being de-listed from the New York Stock Exchange if it doesn't turn in its 2005 financials report by Dec. 31 and its 2006 report by Feb. 29, 2008.
Greg Morcroft is MarketWatch's financial editor in New York.
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Friday was a big day for the Subprime lenders ...
Fremont (5th largest subprime lender) recieved a cease-and-desist order from the FDIC and the company decided to "quit sub-prime lending entirely."
New Century (3rd largest subprime lender) disclosed Friday that it is under criminal investigation on how it accounted for losses when it was forced to buy back soured loans last year, and whether its executives profited by selling stock while misleading other shareholders. Nationwide layoffs were announced on Friday.
Accredited Home (13th largest subprime lender) announced Friday that it would be delaying in 10k filing (usually not a good sign).
Federal regulators on Friday proposed stricter guidelines for government-insured banks and thrifts that make subprime loans, to ensure that they go only to people who can afford them for the long haul (nothing like closing the barn door after the cows got out).
Mortgage Lender Implode-O-Meter is now up to 30.
See the story here:
http://www.latimes.com/business/la-fi-loans3mar03,1,4146026.story?coll=la-headlines-business
Fremont (5th largest subprime lender) recieved a cease-and-desist order from the FDIC and the company decided to "quit sub-prime lending entirely."
New Century (3rd largest subprime lender) disclosed Friday that it is under criminal investigation on how it accounted for losses when it was forced to buy back soured loans last year, and whether its executives profited by selling stock while misleading other shareholders. Nationwide layoffs were announced on Friday.
Accredited Home (13th largest subprime lender) announced Friday that it would be delaying in 10k filing (usually not a good sign).
Federal regulators on Friday proposed stricter guidelines for government-insured banks and thrifts that make subprime loans, to ensure that they go only to people who can afford them for the long haul (nothing like closing the barn door after the cows got out).
Mortgage Lender Implode-O-Meter is now up to 30.
See the story here:
http://www.latimes.com/business/la-fi-loans3mar03,1,4146026.story?coll=la-headlines-business
Hey Goofer44 --
Just curious if your view has changed at all since you wrote this on 2/09 ...
Are you "backing up the truck" or "bailing water from the boat?"
Funny, I got yet another flyer for Brokers on Friday in the mail, advertising all the funky loans they can do with a bright red intro:
The Subprime market is changing, but we're still going strong"
I don't do these loans, but I read the list of "niches" and
couldn't believe they were still offering such high LTV on investment properties with low credit scores and lates on mortgages.
Then I heard the news. :funn:
The Subprime market is changing, but we're still going strong"
I don't do these loans, but I read the list of "niches" and
couldn't believe they were still offering such high LTV on investment properties with low credit scores and lates on mortgages. Then I heard the news. :funn:
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Hey BDC63
Added to C and BAC at 50, Bidding 40 for more WM. Also bought MO PG JNJ CVX INTC PEP . I Will contine to buy into this correction. THIS IS PRECISELY THE TIME YOU BUY GREAT COMPANIES WHEN THEY THROW THE BABY OUT WITH THE BATH WATER. Each year there are 2 or 3 great opportunities to buy stocks. This is the first opportunity. C and BAC have an infintessimal exposure to subprime. Re-read the "message of the stock market" thread. Last August I said to buy housing stocks and everyone threw rocks. They are all up more than 30% since. ( I took my profits up 20%) All the above companies I mentioned raise their dividends EVERY YEAR and grow their earnings. JNJ PG MO CVX C BAC PEP are all the best of the best. This sell off is a gift if you are a serious investor. I have been investing for 30 years. I have experienced the oil embaro of the 70's the crash of 87 and the Asian Contasian of the late 90's. What is ocurring now with sub prime is a good thing in the longer run. The strong companies will get stronger. The excesses will be eliminated. I ALWAYS BUY THE PANIC SELL OFFS. I LOVE BLOOD IN THE STREETS. BRING IT ON, MR. MARKET !!!!!!
Added to C and BAC at 50, Bidding 40 for more WM. Also bought MO PG JNJ CVX INTC PEP . I Will contine to buy into this correction. THIS IS PRECISELY THE TIME YOU BUY GREAT COMPANIES WHEN THEY THROW THE BABY OUT WITH THE BATH WATER. Each year there are 2 or 3 great opportunities to buy stocks. This is the first opportunity. C and BAC have an infintessimal exposure to subprime. Re-read the "message of the stock market" thread. Last August I said to buy housing stocks and everyone threw rocks. They are all up more than 30% since. ( I took my profits up 20%) All the above companies I mentioned raise their dividends EVERY YEAR and grow their earnings. JNJ PG MO CVX C BAC PEP are all the best of the best. This sell off is a gift if you are a serious investor. I have been investing for 30 years. I have experienced the oil embaro of the 70's the crash of 87 and the Asian Contasian of the late 90's. What is ocurring now with sub prime is a good thing in the longer run. The strong companies will get stronger. The excesses will be eliminated. I ALWAYS BUY THE PANIC SELL OFFS. I LOVE BLOOD IN THE STREETS. BRING IT ON, MR. MARKET !!!!!!
Funny, I got yet another flyer for Brokers on Friday in the mail, advertising all the funky loans they can do with a bright red intro:
The Subprime market is changing, but we're still going strong"
I don't do these loans, but I read the list of "niches" and
Then I heard the news. :funn:
I suspect these "strip mall lenders" are still blissfully unaware of the rapidly dwindling number of organizations and speculators willing to buy their garbage. They'll get the picture when they show up for work one morning to find their office supplies in a box on the curb and that the strip mall manager changed the locks on the door.
.
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So much for all the talking heads on CNBC claiming this subprime mess is "contained" and will affect a relatively small number of small lenders ... it doesn't get much bigger than Goldman, Merrill Lynch, and Morgan Stanley ...
This, from Bloomberg:
Goldman, Merrill Almost `Junk,' Their Own Traders SayGoldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley, which earned a record $24.5 billion in 2006, suddenly have become so speculative that their own traders are valuing the three biggest securities firms as barely more creditworthy than junk bonds.
Prices for credit-default swaps linked to the bonds of the New York investment banks this week traded at levels that equate to debt ratings of Baa2, according to Moody's Investors Service. For Goldman, Morgan Stanley and Merrill that's five levels below the actual Aa3 rating on their senior unsecured notes and two steps above non-investment grade, or junk.
Traders of credit derivatives are more alarmed than stock and bond investors that a slowdown in housing and the global equity market rout have hurt the firms. Merrill since 2005 has financed two mortgage lenders that subsequently failed and bought a third, First Franklin Financial Corp., for $1.3 billion.
``These guys have made a lot of money securitizing mortgages over the years in a mortgage boom time,'' said Richard Hofmann, an analyst at bond research firm CreditSights Inc. in New York. ``The question now is what is the exposure to credit risk and what are the potential revenue headwinds if they're not able to keep that securitization machine humming along.''
Credit-default swaps on the debt of Goldman, the world's biggest securities firm, have risen to $32,775 per $10 million in bonds, up from $21,500 at the start of the year, according to prices compiled by London-based CMA Datavision. The price touched $35,000 on Feb. 28, the highest since June 2005.
Spokesmen and spokeswomen for Goldman, Lehman, Merrill and Morgan Stanley declined to comment. A spokeswoman for Bear Stearns didn't immediately return calls for comment.
This, from Bloomberg:
Goldman, Merrill Almost `Junk,' Their Own Traders SayGoldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley, which earned a record $24.5 billion in 2006, suddenly have become so speculative that their own traders are valuing the three biggest securities firms as barely more creditworthy than junk bonds.
Prices for credit-default swaps linked to the bonds of the New York investment banks this week traded at levels that equate to debt ratings of Baa2, according to Moody's Investors Service. For Goldman, Morgan Stanley and Merrill that's five levels below the actual Aa3 rating on their senior unsecured notes and two steps above non-investment grade, or junk.
Traders of credit derivatives are more alarmed than stock and bond investors that a slowdown in housing and the global equity market rout have hurt the firms. Merrill since 2005 has financed two mortgage lenders that subsequently failed and bought a third, First Franklin Financial Corp., for $1.3 billion.
``These guys have made a lot of money securitizing mortgages over the years in a mortgage boom time,'' said Richard Hofmann, an analyst at bond research firm CreditSights Inc. in New York. ``The question now is what is the exposure to credit risk and what are the potential revenue headwinds if they're not able to keep that securitization machine humming along.''
Credit-default swaps on the debt of Goldman, the world's biggest securities firm, have risen to $32,775 per $10 million in bonds, up from $21,500 at the start of the year, according to prices compiled by London-based CMA Datavision. The price touched $35,000 on Feb. 28, the highest since June 2005.
Spokesmen and spokeswomen for Goldman, Lehman, Merrill and Morgan Stanley declined to comment. A spokeswoman for Bear Stearns didn't immediately return calls for comment.
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For what it's worth I bought JOE on Friday. Time will tell.