Headlines...

NEW -> Contingent Buyer Assistance Program
<p>Pending home sales index rises 0.6% in October</p>

<p>http://www.marketwatch.com/news/story/pending-home-sales-index-rises/story.aspx?guid=%7BF169379B-F26A-45FA-BC8D-EE2125E78898%7D</p>
 
<p>Click on "See a Chartbook" for some interesting graphs</p>

U.S. Mortgage Crisis Rivals S&L Meltdown

Toll of Economic Shocks May Linger for Years; A Global Credit Crunch

<p>http://online.wsj.com/article/SB119724657737318810.html?mod=hpp_us_whats_news</p>
 
<a href="http://online.wsj.com/article/SB119725775080019058.html">Interview excerpts: Soros, Volcker, Seidman, and Shiller weigh in on the mortgage crisis</a>.





From George Soros:


<p class="times"><strong>Q:</strong> <em>When prices detach from fundamentals, do people in the thick of a bubble look for new fundamentals to justify prices?</em></p>

<p class="times"><strong>A:</strong> Exactly right. People try to come up with the fundamentals to explain it. That's also the flaw: you have a false idea of markets. The fundamental idea of reflexivity is that financial markets don't tend to equilibrium. But the people who believe they tend to equilibrium have to find a reason that explains why now [mortgages are safe when payments represent] 40% of your income and not 20% or whatever.</p>

In the Shiller Q&A, they link his <a href="http://www.kc.frb.org/publicat/sympos/2007/PDF/2007.09.27.Shiller.pdf">paper for the 2007 Fed Jackson Hole conference</a>. I highly recommend reading it, if you haven't already. It is a great compilation of his previous papers, as well as some new ideas.
 
<p><img height="332" alt="Staving Off a Fire Sale" width="555" src="http://graphics8.nytimes.com/images/2007/12/09/business/1210-biz-subwebSUPERSIV.jpg" /></p>

<p>"The new superfund, announced with much fanfare in mid-October, now looks increasingly irrelevant. Originally it was thought that the entity, called a Master Liquidity Enhancement Conduit, or M-LEC, might raise as much as $80 billion that could prevent a sharp sell-off in securities owned by structured investment vehicles, or SIVs. Now, the M-LEC, known on Wall Street as the Super SIV, may raise just $60 billion, in part because many of the troubled SIVs are winding down themselves..." <a href="http://www.nytimes.com/2007/12/10/business/10finance.html?_r=1&ref=business&oref=slogin">Linky</a></p>
 
<p>Who is going to buy this commercial paper? Who is going to buy the allegedly high grade securities? Nobody, that's who.</p>

<p>Since the Big Banks aren't taking the risks on their own balance sheets, why would anybody believe they have enough money for the back up financing, and that if they did, they would fork it over?</p>

<p>Blechhh.</p>
 
"Since the Big Banks aren't taking the risks on their own balance sheets, why would anybody believe they have enough money for the back up financing, and that if they did, they would fork it over?"



Don't put all of the banks in the same bucket. Some of them have done far less subprime than others. At a few, it's virtually no subprime at all. Some banks specialize in mortgages. Others do quite a bit of other stuff. It pains me to say it, but unsecured credit card lending is actually holding up better than most mortgage operations. Much commercial banking is just fine. Most municipal business is good, at least for now.



I never understood why anyone would want to join the SIV superfund and increase their exposure, unless they were being paid one hell of a lot of money to do it.
 
<a href="http://cartoonbox.slate.com/tomtoles/"><img width="500" border="0" alt="" src="http://content.cartoonbox.slate.com/?feature=735541cf8af1671b026637b0c4e9c603" /></a>
 
<a href="http://www.morganstanley.com/views/gef/index.html">Here is the Morgan Stanley report.</a>





<a href="http://www.slate.com/id/2179605/fr/rss/">Gotta love Daniel Gross, and his love for NAR</a>.
 
<em>Much commercial banking is just fine.





</em>Um... commercial isn't doing all that well. Calculated Risk has plenty of posts on this, <a href="http://Much commercial banking is just fine.">and here is one of them</a>. When USC's Lusk school goes bearish on any RE, it is a sign to worry. Seriously, they are still drinking the vintage kool-aid they inherited from John Lusk.





From MBIA today:





<em>As a consequence of continued spread volatility, including a substantial widening in commercial mortgage-backed security spreads and the deterioration of credit ratings in collateral underlying multi-sector collateralized debt obligations (CDOs), the Company expects to have a mark-to-market loss in the fourth quarter of 2007 significantly greater than that of the third quarter. The ultimate mark-to-market for the fourth quarter will depend on future market developments.





<img src="http://markit.com/cache/curves/3cd494e2b2ce61b5babc3973395.png" alt="" />





</em>Hey... the spreads on the CRE insurance spreads are improving. Still, it is ugly, and that is the AAA spreads.





There are some good banks out there. UBOC is one of them. They actually hold their loans in their portfolio, a fancy concept. The default rates are extremely low, and they are all ARMs, a good portion being I/O, and a decent portion being stated income. Sound underwriting = sound loan portfolio.
 
<p><a title="Permanent Link: Option One loses half-billion bucks" rel="bookmark" href="http://mortgage.freedomblogging.com/2007/12/11/option-one-q2-loss-5512-million/">Option One loses half-billion bucks</a></p>

<p><a href="http://mortgage.freedomblogging.com/2007/12/11/option-one-q2-loss-5512-million/">http://mortgage.freedomblogging.com/2007/12/11/option-one-q2-loss-5512-million/</a></p>

<p><em>H&R Block today said this today about its Irvine-based subprime lender, Option One…</em></p>

<p>On Dec. 4, H&R Block announced it had agreed to terminate the purchase agreement entered into in April 2007 under which an affiliate of Cerberus Capital Management, L.P. would have acquired Option One Mortgage Corporation (OOMC), a wholly owned subsidiary of H&R Block. The company also said then that it will close all origination activities of OOMC and pursue the sale of the loan servicing business.</p>
 
From Barry at the Big Picture: <a href="http://bigpicture.typepad.com/comments/2007/12/top-10-things-y.html">The Top Ten Things You May Not Have Known About The FOMC</a>.





<p>10. The <a href="http://www.federalreserve.gov/pf/pf.htm">Fed exists</a> to insure maximum employment, price stability and moderate long term rates. Their purpose is not to backstop speculators </p>

<p>9. 4.25% Funds rate very accommodative and historically low.</p>

<p>8. Between votes, Fed Governors make fun of BLS economists.</p>

<p>7. Overheard at FOMC meetings: <em>“What would Greenspan do? Let’s do the opposite!”</em></p>

<p>6. Jealous that Jean Claude Trichet gets to hang out with <a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=aCs.keWwNdiY&">Gisele Bundchen</a> </p>

<p>5. Doesn’t give a rat’s ass what Cramer thinks.</p>

<p>4.<em> </em><em>"Then it's resolved, we print more money and we make more speeches . . ."</em></p>

<p>3. There is no Santa Clause -- just some guy with a beard named Ben.</p>

<p>2. Has been long Gold and short the Dollar since 2003. </p>

<p><em>and the #1 thing you may not have known about the FOMC:</em> </p>

<p><strike>1. <em>“Hey, Wall Street: We’re not your Bitch anymore.”</em></strike></p>

<p><em>1. Please forgive us! We crave your approval!</em> </p>
 
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