The loans that got us into this mess were generally the first to fall. Variable rate mortgages written without documentation for people with sketchy credit histories shocked nobody as their slide became an avalanche. But, the good stuff is starting to follow. An increasing amount of fixed rate mortgages offered to borrowers with solid credit histories are feeling their ways to foreclosure. Blame unemployment for this one. When people can't work, it gets pretty hard to pay the mortgage.

Fixed rate, high quality mortgages had a foreclosure a year ago. Last quarter, it jumped to 33%, according to a Mortgage Bankers Association report. As this happened, the amount of homeowners behind on their payments or in foreclosure just set another record high ... for the ninth month in a row. Subprime mortgages are headed in the other direction. Low quality adjustable rate mortgages are now 16% of new foreclosures -- compared to 35% last year. And, more than 18% of Federal Housing Administration loans are anywhere from one payment behind to in foreclosure, with California, Nevada, Arizona and Florida worst off: together, they accounted for 44% of new foreclosures.

Continue reading Even the good die young? High-quality mortgages approaching foreclosure

Even the good die young? High-quality mortgages approaching foreclosure originally appeared on BloggingStocks on Fri, 20 Nov 2009 14:30:00 EST. Please see our terms for use of feeds.

Subprime mortgage defaults peaked and will slowly begin to slide during the next two years.

But don't get excited -- option ARMs and ALT-A mortgages are now beginning to rise at a very rapid rate. According to analysts I follow, notably Ivy Zelman, the next tsunami will be larger than the one we just went through.

And the banks are not currently valuing these mortgages as if they will default at this rate.

Be sure to read all 7 reasons the stock market isn't going up any time soon.

Michael Shulman is a contributor to OptionsZone.com.

Seven reasons the market is not going up any time soon: #2 The next mortgage tsunami originally appeared on BloggingStocks on Mon, 26 Jan 2009 11:33:00 EST. Please see our terms for use of feeds.

The New York Times DealBook recently asked the question "Should banks take back their bonuses?"

The top investment banks will be paying out a record $39 billion in bonuses for 2007, a year in which most posted massive writedowns on bad subprime loans and saw their share prices shrink precipitously.

Making matters worse, traders and investment bankers earned huge bonuses on deals in past year that have now been written down. The deals weren't valued properly in the first place, but who cares! They already got their bonuses.

At the risk of being inflammatory, I have to tell you: This reminds me of Enron, where executives "marked to market" deals based on hypothetical future profits, paid themselves huge bonuses and, in one case, had cashed out and become the largest landowner in Colorado by the time stuff hit the fan.

The problem with the Wall Street bonus system is that it rewards risk over prudence. The compensation philosophy on Wall Street seems to be "Heads I win, tails I still win, as long as I can convince people it was actually a heads at the time I toss the coin. When they find out it was really a tails in a few years, I'll already have spent my bonus on that mansion in the Hamptons, and the shareholders can jolly well deal with it." Or something.

Until someone has the courage to make some changes in the Wall Street bonus structure, we can expect big blow-ups like this from time to time. As economics teaches us, people respond to incentives, and Wall Streeters are incentivized to take big risks with other people's money.

Subprime meltdown shows banking bonuses are a sham originally appeared on BloggingStocks on Tue, 22 Jan 2008 17:43:00 EST. Please see our terms for use of feeds.

Ted Allrich is the founder of The Online Investor and author of Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he offers advice to investors who are just getting started.

While subprime loans are defaulting, there are loans that weren't subprime when they were made and have been paying regularly. But that may change due to their structure. These loans were made at interest rates below the current market rate, called teaser rates. These teaser rates were written for a year or two or even longer. Once those teaser rates expire, the loan then adjusts upward to current interest rates for home loans.

When the new rates adjust higher, so do the payments. Some homeowners won't be able to afford the new payment schedule. The actual number of those is unknown until the end of each month, when the payments are due and aren't made. While interest rates are moving downward at the moment, they may not move down far enough to help these borrowers. That means more mortgages may default over the next several months or years as the teaser rates become current. Only time will tell how many that will be. Not even the lenders know how bad this problem is since there's no way to estimate how many borrowers will stop paying.

Continue reading Comfort Zone Investing: Home lenders -- the depth of the problem

Comfort Zone Investing: Home lenders -- the depth of the problem originally appeared on BloggingStocks on Sat, 15 Dec 2007 10:00:00 EST. Please see our terms for use of feeds.

Continue reading Fed's Yellen joins economy-too-slow chorus

Fed's Yellen joins economy-too-slow chorus originally appeared on BloggingStocks on Tue, 04 Dec 2007 11:23:00 EST. Please see our terms for use of feeds.

Continue reading Traders now sense Fed rate cut, subprime package

Traders now sense Fed rate cut, subprime package originally appeared on BloggingStocks on Fri, 30 Nov 2007 12:46:00 EST. Please see our terms for use of feeds.

The New York Times reports that the Dow lost 360 points -- or 2.64% -- back to where it was before Ben Bernanke cut the Federal Funds Rate an unexpectedly large 50 basis points. My message to Bernanke is that cutting rates just to keep the market from falling is not a winning strategy.

The Fed is supposed to keep inflation in check, and it's failing at that job. How so? At $96.37, the price of oil is near an unprecedented $100, and gasoline prices -- which blessedly dropped during the fall -- are poised to rise about 50% to $4.50 a gallon, just as people step up their driving during the holidays. On January 19, 2001, oil was $24 a barrel -- it has since quadrupled. Meanwhile, the cost of heating a home is hitting a record -- $3.05 a gallon for home heating oil in Massachusetts. It may be higher elsewhere.

Then there's the little problem that the Fed has engendered through its rate cuts -- a dollar that's plunging like a knife. Relative to the euro, the dollar has lost 13% from $1.30 at the beginning of January 2007, to its current $1.47. And since January 19, 2001, the dollar has lost 60% of its value! Back then, one euro bought 92 cents. In addition to Brazilian supermodel Gisele Bundchen, China is now seeking to switch from the dollar to the euro. So the dollar drop is feeding on itself.

Continue reading Markets plunge on near-$100 oil, a record-low dollar, and billions in distressed debt

Markets plunge on near-$100 oil, a record-low dollar, and billions in distressed debt originally appeared on BloggingStocks on Wed, 07 Nov 2007 18:12:00 EST. Please see our terms for use of feeds.

Greenspan: Cut home inventories, stabilize the U.S. financial system originally appeared on BloggingStocks on Tue, 06 Nov 2007 10:23:00 EST. Please see our terms for use of feeds.

Countrywide (NYSE:CFC), a U.S. home mortgage lender, is down .92 to $19.18. According to Dow Jones Source; From CFC's Chairman of the Board Angelo R Mozilo sold 139,918 shares at $20.14 for a value of $2,818,368 on 10/8/07 after exercising 139,918 shares for $9.94 for value of $1,390,785 on 10/8/07. CFC November option implied volatility of 68 is above its 26-week average of 59 according to Track Data, suggesting larger risk.

US Airways (NYSE: LCC) is recently up .95 to $31.52. Goldman Sachs upgraded LCC to Buy from Neutral and raised its price target to $36 from $33. LCC over all option implied volatility of 57 is above its 26-week average of 52 according to Track Data, suggesting slightly larger risks.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Option update: Countrywide (CFC) volatility still elevated; Mozilo still selling shares originally appeared on BloggingStocks on Tue, 09 Oct 2007 15:05:00 EST. Please see our terms for use of feeds.

The New York Times reports that another European bank hedge fund has been wiped out due to its investment in subprime mortgage backed securities (SMBS). Netherlands' NIBC Holdings reported that it lost at least $188 million on investments in the American mortgage market for subprime loans. It joins Paris' BNP and Düsseldorf, IKB Deutsche Industriebank, and some Australian hedge funds and banks.

With the globalization of financial markets, it's clear that nobody knows which banks, hedge funds, insurance companies, and pension funds own those SMBSs. Nor do they know how much money banks have lent these institutional investors. But if the banks decide they want their money back, and the collateral is worthless, then the institutional investors will either need to sell more liquid holdings -- e.g., stocks -- or they will file for bankruptcy.

In a rather lame move, the Wall Street Journal reports that in an effort to see if they're hiding losses, the SEC is examining the books of U.S. investment banks to see if they're marking down the value of their own subprime portfolios in the same way as they are marking down those of their clients. But what's really needed, as I suggested above, is a view of the global damage -- not just the situation in the U.S.

Continue reading Who owns our toxic subprime waste?

Who owns our toxic subprime waste? originally appeared on BloggingStocks on Fri, 10 Aug 2007 10:20:00 EST. Please see our terms for use of feeds.

Home Depot (NYSE: HD) hoped it had sold its HD Supply business to private equity interests for $10.325 billion. Problems in the credit market trashed the deal.

HD announced that it is now in "discussions with affiliates of Bain Capital Partners, The Carlyle Group and Clayton, Dubilier & Rice for the purpose of restructuring the previously announced agreement for the sale of HD Supply."

That means that the buyers want a better price because they cannot raise the cake to make the purchase. Obviously, no sane bank or investment firm wants to make a high-risk loan for a high-leverage deal. Not with most of them holding the bags on other deals that they could not syndicate to institutional investors.

Market conditions are also causing the retailer to drop the price at which it will buy its shares in its previously announced "Dutch auction" tender offer to purchase up to 250 million shares of its common stock at a price between $39 and $44. Market conditions have caused the company to drop the price range to between $37 and $42 per share.

If the market needed a sign that the credit markets are on the critical list, this is it. One of America's largest companies lowering the price of a buyback and three premiere private equity firms unable to raise capital for a previously announced deal. Imagine how bad things are getting for less marquee deals.

Home Depot shares are down almost 6% in the pre-market.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Credit markets snag sale of Home Depot's HD Supply originally appeared on BloggingStocks on Thu, 09 Aug 2007 09:45:00 EST. Please see our terms for use of feeds.

Jim Rogers is pretty much the man, and anyone who followed the advice in his book Hot Commodities has already made a bunch of money. But his latest comments on state of the financial world are not so encouraging.

Rogers said the fallout from the subprime mess has "got a long way to go'' in an interview with Bloomberg News. According to the piece:

"This was one of the biggest bubbles we've ever had in credit,'' Rogers, chairman of New York-based Beeland Interests Inc., said in an interview from Hong Kong. "I have been and am still short the investment bankers in America. I'm also short homebuilders.''

Uh oh. Jim Rogers is one of a handful of experts who really is worth listening to when he opines on macroeconomic issues, even if you don't like what he has to say.

The business world is anxiously waiting to hear what Ben Bernanke has to say, but Rogers' wisdom may be even more important for individual investors to heed.

Also on CNBC this morning, Jim Rogers said he did not support a Fed bailout of the stock market and said that while Bernanke is "not very smart," he hopes he won't make that mistake.

Jim Rogers: Bernanke isn't smart and real estate has a lot farther to fall originally appeared on BloggingStocks on Mon, 06 Aug 2007 12:58:00 EST. Please see our terms for use of feeds.

Ben Bernanke told us in May that the impact of subprime mortgages collapsing would be contained. But The Financial Times begs to differ. FT reports that leading bankers are trying to calm the global markets even as they admit that the shockwaves from the U.S. subprime collapse could put private equity deals on hold for the next few months.

Is Ben Bernanke wrong? How could a former Princeton economist not understand that problems in one category of loans might make banks nervous about other loan categories? Or is it simply that Bernanke took his job as economic cheerleader in chief a little too seriously?

One banker thinks it could be three months before subprime's damage takes its foot off the brakes of private equity. Bob Diamond, Barclays president, predicted the consequences of the subprime collapse could take more than a year to be resolved. However, he said the leveraged loan market should recover more quickly: "We would expect at some point over the next two to three months to see that market at more normal volume levels."

Maybe Diamond is right and Bernanke is righter. But is it possible that their predictions are just wishful thinking? I don't know. What do you think?

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter.

Will the subprime fallout snag private equity? originally appeared on BloggingStocks on Fri, 03 Aug 2007 15:00:00 EST. Please see our terms for use of feeds.