Credit Market Trends [Housing Tracker]

Credit Markets and Subprime Aftermath

Fed's TAF Auctions $75 Bln 28-Day Loans At 2.36%.  “The Federal Reserve's fourteenth auction through its Term Auction Facility lent $75 billion of 28-day credits at 2.36%. The stop-out rate came in above the 2% Fed Funds target rate and the 2.25% discount window rate. The June 16 auction had 76 bidders and a bid-to-cover ratio of 1.19. Bidders requested a total of $89.38B, above the $75B accepted. This is the fourth auction in which the Fed has offered $75B in loans. During its last auction on June 2, the Fed offered $75B at a lower 2.26% rate.”  (Thomson Financial via Forbes, June 17^th) 

U.S. Pushes a European Method To Help Banks Make Home Loans.  “The Treasury Department is… encouraging lenders to issue… "covered bonds" to raise money for mortgage lending… The successful $2.75 trillion covered-bond market in Europe [is] the primary source of mortgage-loan funding for European banks. Some analysts [foresee] a $1T covered-bond market in the U.S… over the next few years. Currently, the market is minuscule compared with the $11T U.S. home mortgages [market]. Covered bonds… stay on a bank's balance sheet and the buyer of the bonds gets double protection. The bonds are backed first by a "cover pool" of high-quality mortgages… If the mortgages go bad, the bank must step in to ensure bond-holders get their interest.”  (WSJ, June 17^th) 

Brace For Other Shoe To Drop In Mortgage Mess, Some Warn.  “Bank consultant, former mortgage broker [and] blogger "Mr. Mortgage," Mark Hanson, is among a handful of industry soothsayers who expect another big wave of foreclosures to hit sometime around 2010, driven by defaults [on] less risky "alternative-A” loans… Defaults have been creeping up in the alt-A category this year.  Hanson: “I think we are through the subprime blowup, but that's nothing compared to what's coming.” [Hanson believes] other borrowers will follow the path of subprime borrowers, who started defaulting when their mortgage interest rates reset to higher levels. Credit Suisse: Many alt-A borrowers face a bump in their monthly payments starting mid-2010.”  (Sacramento Business Journal, June 17^th) 

Foreign Acquisitions Of U.S. Securities Soar. “Treasury Dept.: Foreign demand for long-term U.S. securities jumped in April, partly due to greater interest in Treasury notes and bonds. Net foreign acquisition of long-maturity U.S. securities totaled $102.8 billion in April, following purchases of $53.3B the month before. Foreign net purchases of U.S. Treasury notes and bonds totaled $80.3B in April, up from $53.6B in March. Brian Bethune, chief U.S. financial economist at Global Insight: "The bottom line from this report is that overseas demand for U.S. long-term securities remained strong in April and in Q1’08, notwithstanding downward pressure on the U.S. dollar and extremely turbulent conditions in world financial markets."  (Wall St. Journal, June 17^th) 

Goldman Agrees $7bn SIV Restructuring.  “Goldman Sachs has finalized a plan to restructure a $7bn investment vehicle formerly run by hedge fund Cheyne Capital... The US bank’s proposed reorganization of the so-called structured investment vehicle is set to be just the first of a number of deals that could see about $18bn worth of SIV assets restructured in the coming months… The deal marks the first time that any collapsed SIV has been restructured in this way… The Cheyne restructuring… will require the receivers to organize an auction of the Cheyne assets in the coming weeks, to establish a transparent price for these instruments.”  (Financial Times, June 16^th)

 

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Comments

[kebu77]

Comment on "Brace For Other Shoe To Drop In Mortgage Mess, Some Warn" - -

"[Hanson believes] other borrowers will follow the path of subprime borrowers, who started defaulting when their mortgage interest rates reset to higher levels."

This idea that borrowers wait until a reset to bail underestimates their intelligence - - many borrowers bail months in advance of the inevitable - - and their is much encouragement on the web for them to do so.

If the Alt-A peak hits in mid 2010, look for rising defaults well in advance as a leading indicator of how big the problem will get.