by Calculated Risk on 3/13/2007 08:40:00 AM

Press Release: Accredited Pursuing Strategic Options

Accredited Home Lenders Holding Co. (NASDAQ:LEND - News; "Accredited" or "Company") announced today that it is currently exploring various strategic options, including raising additional capital to enhance liquidity and provide the Company with the flexibility to retain or sell originated loans based on an assessment of the best overall return. Accredited's available cash resources have been affected primarily by margin calls under its warehouse and repurchase facilities since January 1, 2007, all of which have been met to date, as well as ongoing loan repurchases. The Company reported that it has paid approximately $190 million in margin calls on its facilities since January 1, 2007. Approximately two-thirds of those margin calls have been received and paid since February 15, 2007.

In addition, Accredited is seeking waivers and extensions of waivers of certain financial and operating covenants under its warehouse and repurchase facilities, including waivers relating to required levels of net income. The Company has been operating under various waivers under these facilities since December 31, 2006. There can be no assurance that the Company will be successful in receiving any of the required waivers.

Accredited also reported that it is pursuing certain cost restructuring initiatives, including further workforce reductions.

The Company continues to evaluate impairment of the goodwill established in its acquisition of Aames Investment Corporation ("Aames") in the fourth quarter of 2006. In light of this evaluation, along with work that must be completed for the Company's year-end audit, it is unlikely that the Company will file its Annual Report on Form 10-K by March 16, 2007 as previously contemplated in its Notification of Late Filing on Form 12b-25 filed with the Securities and Exchange Commission on March 1, 2007.

by Calculated Risk on 3/13/2007 08:32:00 AM

From the Census Bureau:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $370.5 billion, an increase of 0.1 percent from the previous month and up 3.2 percent from February 2006. Total sales for the December 2006 through February 2007 were up 3.7 percent from the same period a year ago. The December 2006 to January 2007 percent change was unrevised from 0.0 percent.

From MarketWatch: U.S. retail sales rise 0.1% in February on cars, gas

U.S. retail sales stayed soft in February, rising just 0.1% after no gain in January, the Commerce Department reported Tuesday. Sales were led by a solid 0.9% rise in auto sales and a 1.2% rise in gasoline station sales, which was boosted by higher prices at the pump. Sales were weaker than Wall Street's expectations for 0.2% gains for both overall sales and for sales excluding autos. Sales elsewhere were weak. Sales excluding autos fell 0.1%, the first decline since October. And excluding both cars and gasoline sales, retail sales fell 0.3%, the largest decline since April 2004.

by Calculated Risk on 3/13/2007 01:10:00 AM

Manpower, Inc. reports: Outlook Survey Finds Hint of Restraint in U.S. Hiring Plans for the Second Quarter

"A look at the last three quarters of survey data suggests that employers are shifting into neutral when it comes to hiring," said Jeffrey A. Joerres, Chairman & CEO of Manpower Inc. "Companies expect to coast through the next three months without much growth in the way of staff. It is a subtle change that may not yet be perceived in the job market, however it is a break from the three plus years of nearly unchanged hiring plans."

by Calculated Risk on 3/12/2007 06:19:00 PM

CR Note: To put the title into context, last December during the Toll Brothers conference call, Ivy Zelman asked CEO Bob Toll:

"Which Kool-aid are you drinking?"

From Tanta:

Ivy Zelman and several colleagues at Credit Suisse have put together a very big and highly detailed equity research report called “Mortgage Liquidity du Jour: Underestimated No More,” which unfortunately is not available on the free internet. Although the title may suggest otherwise, the report is not really about mortgage credit issues; it is an attempt to look at the rapidly deteriorating conditions in the mortgage market for their impact on homebuilders, which are the equities Zelman covers. (Sure, CR basically has already done exactly this analysis, but Zelman has the advantage of access to databases and CSFB’s mortgage industry analysts.) The upshot is that Zelman is not drinking the kool aid that the problems are limited to subprime only, or entry-level housing only, or are going to be over any time soon.

First, the report looks at overall recent trends in the large categories of general credit quality (prime, Alt-A, and subprime):

See document here. Just the leads are in this post to let the reader find the text.

The overall share of prime conventional loans . . .

The report then summarizes the current situation of guideline tightening and regulatory changes that are contracting the mortgage market (a familiar list of items to CR readers). It concludes that

[T]ightening liquidity puts current builder backlogs at considerable risk ...

Moving beyond changes in the origination market, the report looks at issues of performance of the current mortgage book for its further impact on new home sales:

We estimate that there are approximately 565,000 homes in the foreclosure process...

Finally, the report turns consideration of this data into a set of projections of the effect on new and existing home sales:

In our base case, we assume that 50% of the subprime market is at risk, . . .

by Calculated Risk on 3/12/2007 03:46:00 PM

From CNNMoney (hat tip Anthony): Countrywide may feel subprime earnings drag

Countrywide told its brokers Friday to stop offering borrowers the option of taking out a mortgage without a down payment ...

UPDATE: From Reuters: Countrywide says subprime turmoil may harm results

Countrywide Financial Corp. ... said on Monday that foreclosures rose to a five-year high and turmoil in the subprime market may hurt earnings ...

The increase in foreclosures is the latest sign of stress in the mortgage lending sector, which is struggling with mounting losses and rising defaults.
...
Countrywide said the foreclosure rate rose to 0.70 percent from January's 0.69 percent and last February's 0.47 percent.

It also said 4.71 percent of loans were at least 30 days past due, the same as in January and up from 4.29 percent last February. The rate matched the second-highest level over the last five years.

And from the Broker's Grapevine (caution should be used when reading these posts): Is Countrywide subprime no longer in business?

I just looked at the matrix. Max CLTV for any score or doc type subprime is 90%.
by Kyle@CreveCor March 12, 2007
--------------------------------------------------------------------------------

my rep says they got rid of middle management. and cutting reps from 9 to 4. said a 80/20 the first will have a rate of around 10%. hang on ya´ll
by diva for loans March 12, 2007
--------------------------------------------------------------------------------

I was an AE with them....I was let go as of this morning. From what I understand, about 70% of the outside sales force was fired today. On top of that a lot of the middle management was fired as well. Next step will of course be Ops staff.

Not sure if they´ll stick around or not...but they will be much smaller than before.

by MakinDreams March 12, 2007
--------------------------------------------------------------------------------

by Calculated Risk on 3/12/2007 02:26:00 PM

For discussion, Tanta asked that I reference this chart from Credit Suisse: Segmentation of Outstanding First-Lien Residential Mortgage Debt. See page 28 (exhibit 21) here.


Note that this is First-Lien only.


Tanta will have more later today.

by Calculated Risk on 3/12/2007 12:36:00 PM

In a research note this morning, titled "Mortgage Liquidity du Jour: Underestimated No More", Ivy Zelman, et. al. at Credit Suisse wrote "it’s not just a subprime issue."

"Not just a subprime issue." More supply. Lower demand. Lower prices.

For those in the housing industry, 2007 will make 2006 look like a great year.

by Calculated Risk on 3/12/2007 11:04:00 AM

From CNNMoney: Embattled subprime lender says its lenders are cutting off financing; faces $8.4 billion in obligations.

Embattled mortgage lender New Century Financial Corp. warned Monday of a series of serious financial problems that cast its future in doubt - and cast a pall over much of the nation's financial sector.

The Irvine, Calif.-based company, No. 2 in lending to borrowers with weak credit, said that all of its own lenders are cutting off financing, that it has been found in default of many of its financial agreements, and that it does not have the funds necessary to meet its obligations under current circumstances.

New Century Financial detailed a new series of financial problems in a filing with the Securities and Exchange Commission early Monday.

In addition, the company said it does not expect to meet the March 16 extension for filing a 10-K annual financial report with the Securities and Exchange Commission.

Here is the SEC filing.

by Calculated Risk on 3/12/2007 01:29:00 AM

From the WSJ: Subprime Fallout May Not Infect Broader Market

As more financially stretched homeowners renege on their debts ... economists are surprisingly sanguine about the broader economy's ability to weather the storm. ...

... the market for "subprime" mortgages -- home loans made to people with poor or sketchy credit histories -- has unraveled with impressive speed and intensity. ...

So far, though, many economists -- including Federal Reserve Chairman Ben Bernanke -- haven't changed their forecasts as a result of the subprime troubles. ...

"No doubt some of the worst practices of the housing boom are going to yield some payback," says Steve Wieting, senior U.S. economist at Citigroup in New York. "But it's not large enough to derail an otherwise healthy economy."

It's amusing that the article quotes Citigroup, the poster child for overly optimistic housing forecasts.

... The main reason for economists' equanimity: Those who took out subprime loans tend to be less-affluent consumers who make up a relatively small share of consumer spending, the most important driver of the U.S. economy. ...

This seems reasonable if you make two assumptions: 1) the problems will stay in subprime, and 2) there will be little impact on the housing market from the subprime implosion. The first is possible, the second is not.

Then the WSJ article notes that housing supply will increase and demand will fall:

... the pullback in credit for subprime-mortgage borrowers could have a meaningful effect on its own. As some potential home buyers find it harder to get money and more bad loans beget more foreclosures, the decreased demand and increased supply of homes could depress prices, deepening the housing slump.

And what will be the impact on the economy of the deeper housing slump? The article doesn't take the next step, so I will: there will be significant housing related job losses, and slower growth in consumer spending since homeowners cannot borrow against their homes (less Mortgage Equity Withdrawal or MEW). It's probably a coin-flip if these problems will take the economy into a recession in 2007.

I'm definitely less sanguine than most Wall Street economists.

by Calculated Risk on 3/11/2007 03:35:00 PM

From the Financial Times (hat tip Name): The dream machine: invention of credit derivatives. A short except on Bistro:

By 1997, Demchak and Masters came up with their Big Idea: a product known as Bistro, short for Broad Index Secured Trust Offering. ... What Bistro did was to use credit derivatives to “clean up” a bank’s balance sheet. The scheme started by taking a basket of bank loans and separating out - in accounting terms - the theoretical risk that these loans would turn sour from the loans themselves. This default risk was usually then sold to a “paper” company, known as a special purpose vehicle, which then issued bonds that investors could buy. ... And as long as the deal was structured in a way that made the bonds look cheap, relative to the risk of default, then investors would think they had got a good deal. The pricing itself was based on what had happened to banks’ loan books in recent years (together with some complex number crunching).

The deal looked even better for the original bank. For the act of selling the default risk on to new investors had crucial regulatory implications. International banking rules say that banks have to hold a certain level of spare funds (or reserves) to protect themselves from the danger that their loans might turn bad. However, since the banks had sold the risk of default on to somebody else, they could now argue that they did not need to hold these funds.

To anybody outside the world of finance, this might look odd (after all, the banks were still making loans); but the regulators accepted this argument, since the risk had moved, in accounting terms. And that let the banks free up funds to make even more loans. It was the financial equivalent of calorie-free chocolate: almost too good to be true.