How a housing boom turned into a bust

Housing woes have domino effect

By Kathy Chu with Sharon Silke Carty, Greg Farrell, Barbara Hagenbaugh, Edward Iwata, Noelle Knox and Adam Shell

If you haven't yet felt the impact of the nation's credit crisis, just wait. Chances are, you won't have to wait long.

So far, the turmoil may feel a bit remote for average people: Failed mortgage lenders. Gargantuan write-downs by banks. Foreclosures for people who couldn't really afford the mortgages they got.

What about the rest of us? Are we in danger? No one knows for sure, but quite likely, yes.

http://www.usatoday.com/money/economy/2007-11-25-credit-crunch_N.htm

A good article from USA Today with lots of charts.

The Fed Rate Cut Aftermath

Mr Practical Oct 04, 2007 9:45 am

As stocks climb to new highs, let’s look at what the Fed’s rate cuts have really done. 30 year mortgage rates before the cut... 6.375%. 30-year mortgage rates after the cut... 6.625%. Stocks’ reaction... priceless.

Forget about 5-year ARMs and interest-only loans. Those are priced completely differently now and are bones in the sand. A mortgage broker at a big bank tells me business is down significantly with no signs of picking up.

http://www.minyanville.com/articles/banks-Fed+rate+cut-mortgage-ARMs-speculating/index/a/14350

Robert Kuttner Testimony to Committee of Financial Services

This is a testimony before the US House of Representatives on the parallels of banking practices of the 1920's and current times by Robert Kuttner.

http://www.house.gov/apps/list/hearing/financialsvcs_dem/testimony_-_kuttner.pdf

Bank of England Tries to Stop Bank Run

Bank of England tries to stop a run on mortgage bank
By Tariq Panja, Associated Press Writer

LONDON — The Bank of England provided emergency funding to mortgage lender Northern Rock on Friday after the bank, citing the global credit squeeze triggered by the U.S. subprime mortgage crisis, said it was unable to line up short-term loans from other financial institutions.
Even after the central bank issued a statement saying Northern Rock was solvent, slow-moving lines of customers snaked through the doors at the bank's branches to make withdrawals.

http://www.usatoday.com/money/world/2007-09-14-british-bank_N.htm

Northern Rock Gets Emergency Bank of England Funding (Update8)
By Ben Livesey and Jon Menon

Sept. 14 (Bloomberg) -- Northern Rock Plc got emergency funding from the Bank of England, the biggest bailout of a British lender in 30 years, after rising credit costs left the mortgage provider unable to make new loans.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a7WvTBECy164&refer=home

Northern Rock Crumbles
Vidya Ram, 09.14.07, 9:40 AM ET

LONDON -
The moment that the British banking sector has been dreading came on Friday. Northern Rock, the country's fifth-largest mortgage lender, confirmed late on Thursday that it had requested and received a line of emergency funding from the Bank of England.

http://www.forbes.com/markets/2007/09/14/northern-rock-britain-markets-equity-cx_vr_0914markets03.html

California Foreclosure Statistics

This article has some interesting California stats:

http://www.centralvalleybusinesstimes.com/stories/001/?ID=6291

Double-digit increase in foreclosure sales statewide

September 12, 2007 4:59am

• Realty speculators walk away from $1.71 billion in mortgage loans
• ‘Rampant speculation … played a leading role’

A total of 9,477 properties – with a total loan value of $3.86 billion – were sold at auction in California last month, a 10.4 percent increase over July, according to figures compiled by ForeclosureRadar, a Discovery Bay-based foreclosure information service.

Speculator-owned properties (non-owner occupied properties) accounted for $1.71 billion of that total and represented 44.3 percent, or 4,199 of the properties sold at foreclosure auction.

“Many blame subprime lending for our current real estate crisis, but rampant speculation, even by those with great credit, played a leading role,” says Sean O’Toole, founder and CEO of ForeclosureRadar.com......

• Almost all (90.3%) of all foreclosure sales in California in August were for homes purchased or refinanced in 2005 and 2006.

• Of properties sold at auction, 95% went back to the bank – for a total of 9,015 properties with a loan value of $3.7 billion.

International Representatives Demand to Oversee U.S. Markets

September 3, 2007
From theTrumpet.com

The unfolding “made in America” worldwide subprime mortgage crisis has foreign bankers demanding international regulation of American markets, banks and rating agencies. By Robert Morley

In his foreign-policy speech on August 27, French President Nicolas Sarkozy called for an enhanced global rule book to avoid financial crises. Sarkozy, who has vowed to “moralize financial capitalism,” said such crises could reoccur if “the leaders of major countries” did not take “concerted
action to foster transparency and regulation of international markets.”
International bankers and investors from China to France and Germany have lost billions of dollars because U.S. investments, sold as safe, turned out to be far riskier and worth much less than what American investment-rating agencies and banks led them to believe. They don’t want to be deceived again.

http://www.thetrumpet.com/index.php?q=4208.2381.0.0

Fed bends rules to help two big banks

http://money.cnn.com/2007/08/24/magazines/fortune/eavis_citigroup.fortune/index.htm?source=yahoo_quote

If the Federal Reserve is waiving a fundamental principle in banking regulation, the credit crunch must still be sapping the strength of America's biggest banks. Fortune's Peter Eavis documents an unusual Fed move.

By Peter Eavis, Fortune writer
August 24 2007: 5:09 PM EDT

NEW YORK (Fortune) -- In a clear sign that the credit crunch is still affecting the nation's largest financial institutions, the Federal Reserve agreed this week to bend key banking regulations to help out Citigroup (Charts, Fortune 500) and Bank of America (Charts, Fortune 500), according to documents posted Friday on the Fed's web site.
The Aug. 20 letters from the Fed to Citigroup and Bank of America state that the Fed, which regulates large parts of the U.S. financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally-insured banks can do with their brokerage affiliates. The exemption, which is temporary, means, for example, that Citigroup's Citibank entity can substantially increase funding to Citigroup Global Markets, its brokerage subsidiary. Citigroup and Bank of America requested the exemptions, according to the letters, to provide liquidity to those holding mortgage loans, mortgage-backed securities, and other securities.

Is WaMu the Next Countrywide?

By Philip van DoornTheStreet.com Ratings Bank Analyst8/22/2007 5:39 AM EDT

Countrywide Financial (CFC - Cramer's Take - Stockpickr) isn't the only big bank threatened by the deepening real estate crisis.
An analysis of the largest 20 banks and thrifts by TheStreet.com Ratings shows that four institutions are under-reserved for possible credit losses, a red flag as the economy slows and mortgage defaults rise.
Perhaps more troubling, the numbers show that one of those institutions -- Washington Mutual (WM - Cramer's Take - Stockpickr) -- could join Countrywide in facing serious liquidity problems as worries about the housing and mortgage markets multiply.

http://www.thestreet.com/_htmlbtb/newsanalysis/ratings/10375529.html

There is a chart at the bottom of the 20 banks they analysed.

Throwing a Bone To A Starving Dog

Here is an article about what the Fed did last week..........

Throwing a Bone To A Starving Dog
by Lee Adler

There sure has been a lot of nonsensical gibberish flying around the financial infomercial media, and in the world of blogs and message boards since Friday. So let’s try to separate fact from fantasy.

We’ll start with something I agree with. I do believe that the Fed’s action had everything to do with Countrywide’s bank arm, the well publicized run by their customers, and the fact that they were forced to borrow apparently all of their $11 billion bank credit facility. This is a dangerous and volatile mix in the arena of the public confidence game that fiat money systems depend on. The Fed had to do “something” to give the world the impression that they were actually “doing” something.

What did they actually do? Not much.

http://wallstreetexaminer.com/?p=1550

This can't be good for Countrywide

I hope they don't mean this because I'm sure the credit crisis won't be over in 3 months.

http://www.dailynews.com/news/ci_6643472

Countrywide's troubles deepen
BY GREGORY J. WILCOX, Staff Writer

CALABASAS - Countrywide Financial Corp.'s financial trouble deepened Thursday, forcing the nation's biggest mortgage lender to tap an $11.5 billion credit line to fund operations.

Paul J. Miller, an analyst at Friedman, Billings, Ramsey & Co., said in a research report that Countrywide's survival depends on how long the mortgage crisis lasts.
"We do believe there is a scenario in which the current liquidity crises last for longer than three months and CFC is forced into bankruptcy," he wrote. "It will be ugly, but it can happen!"

Miller also predicted that if the crisis passes within a month, the company will be able to resume normal origination functions and its stock price will jump back into the $30 range.
If it persists for more than a month, he said, Countrywide might be forced to sell assets at a deep discount, putting "tremendous pressure" on its stock.

More Trouble for Countrywide

http://www.latimes.com/business/la-fi-countrywide17aug17,1,5048775.story?coll=la-headlines-business&ctrack=1&cset=true

THE MORTGAGE MELTDOWN

A rush to pull out cash

Worried about the stability of mortgage giant Countrywide Financial, depositors crowd branches. In Laguna Niguel, Bill Ashmore drove his Porsche Cayenne to the bank's office and waited half an hour to cash out $500,000. "It's got my wife totally freaked out," he said.

By E. Scott Reckard and Annette HaddadAugust 17, 2007

Anxious customers jammed the phone lines and website of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.

French Bank Freezes Three Investment Funds

BNP Paribas Freezes Funds as Loan Losses Roil Markets (Update4)
By Sebastian Boyd

Aug. 9 (Bloomberg) -- BNP Paribas SA, France's biggest bank, halted withdrawals from three investment funds because it couldn't ``fairly'' value their holdings after U.S. subprime mortgage losses roiled credit markets.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aNIJ.UO9Pzxw&refer=home

BNP freezes $2.2 bln of funds over subprime
Thu Aug 9, 2007 8:09AM EDT
By Sudip Kar-Gupta and Yann Le Guernigou


PARIS (Reuters) - France's biggest listed bank, BNP Paribas (BNPP.PA: Quote, Profile, Research), froze 1.6 billion euros ($2.2 billion) worth of funds on Thursday, citing the U.S. subprime mortgage sector woes that have rattled financial markets worldwide.

http://www.reuters.com/article/hotStocksNews/idUSWEB612920070809