by Tanta on 8/02/2007 04:14:00 PM

Newsday:

American Home Mortgage Investment Corp. will be closing its doors Friday, after several attempts to sell of all or some of its divisions to rival lenders went up in smoke this week, numerous employees said.

Employees said they were contacted by senior management through the course of the day and told that none of their strategic options for remaining open had panned out.

Thanks, Gamma.

by Tanta on 8/02/2007 03:28:00 PM

Several of you have asked about the size of the Alt-A market. Here are some charts from Credit Suisse you may find informative.

Hat tip "Clyde"!

by Calculated Risk on 8/02/2007 12:53:00 PM

I've seen several unconfirmed reports of Alt-A products being discontinued at various lenders. Mathew Padilla has a follow-up on the Wells Fargo Alt-A story: Wells Fargo scales back Alt-A loans

I'm hearing similar reports regarding the discontinuation of products from IndyMac, WaMu and Wachovia. Note: none of these stories have been confirmed.

As I mentioned in the comments, it appears August rhymes with February. In February standards started to be tightened for many subprime products - or the products were eliminated completely. Now the same appears to be happening for Alt-A.

UPDATE: IndyMac comments (hat tip Brian)

Click on graph for larger image.

IndyMac CEO says mortgage markets "panicked and illiquid"

IndyMac CEO says AAA private MBS bonds are difficult to trade.

IndyMac CEO says disruption "broader and more serious" than past.

From IMB report:

... here is a copy of an email CEO Mike Perry sent out to all Indymac employees yesterday on this subject:

Unfortunately, the private secondary markets (excluding the GSEs and Ginnie Mae) continue to remain very panicked and illiquid. By way of example, it is currently difficult, at present, to trade even the AAA bond on any private MBS transaction. In addition, to give you an idea as to how unprecedented this market has become…I received a call from U.S. Senator Dodd this morning who seeking an understanding of “what is really going on and how can I and Congress help?” I also have talked to the Chairman of Fannie Mae this morning and have traded calls with the Chairman of Freddie Mac (Fannie Mae’s Chairman telling me that they are “prepared to step up and help the industry”).

Unlike past private secondary mortgage market disruptions, which have lasted a few weeks or so…our industry and Indymac have to be prudent and assume that this present disruption, which appears broader and more serious, might take longer to correct itself. As a result, we have seen just since yesterday, many major mortgage lenders announce additional product cutbacks…some leaving subprime, Alt-a, and other products altogether or restricting some products to only their own retail channel (and possibly wholesale) and significant, additional price widening.

While we have very strong liquidity, a good amount of excess capital and there are no realistic scenarios that I can foresee that would impair Indymac’s viability (thanks to our Federal Thrift structure), as I said on the earnings conference call yesterday…we cannot continue to fund $80 to $100 billion of loans through a $33 billion balance sheet….unless we know we can sell a significant portion of these loans into the secondary market…and right now, other than the GSEs and Ginnie Mae….the private secondary market is not functioning.

As a result, Indymac like all major lenders, will continue to widen its pricing and tighten product and underwriting guidelines to ensure that a much great percentage of our production qualifies for sale to the GSEs or through a GNMA security (we sold 40% to the GSEs in the 2nd quarter, up from 30% in Q107 and 19% in 2006, and we want to get it up to at least 60% asap). We are hopeful that private AAA MBS bonds begin to trade soon…and have encouraged the GSEs to step in and provide additional liquidity to the secondary markets (their primary role) for both these private securities and other loans.

While this is an abrupt and uncomfortable change, it is a change that all of our competitors are making just as abruptly, if not more abruptly…so it should not result in one mortgage company having a competitive advantage over another. The reality is I have a lot of confidence in our industry’s mortgage originators (and in particular Indymac’s customers and retail loan officers)….to quickly move as many borrowers as possible to this more full doc, conforming loan environment. I remain hopeful that these very major changes which are clearly negative for our and industry’s loan volumes…will be largely offset for Indymac by the fact that we have fewer players left in the business….we are certainly seeing it play out this way so far this week.

More specific details on products and channels will follow in the next few days. Thanks. Mike

P.S. We will still originate product that cannot be sold to the GSEs…just less of it and we will have to assume we retain it in portfolio (until the AAA private MBS market recovers).

by Tanta on 8/02/2007 11:36:00 AM

Kimono firmly closed, we learn:

Some hedge funds that have suffered losses on investments are closing the gate on clients who want to pull money out, a move that could further undermine confidence in already shaky financial markets.

Temporarily barring withdrawals, though legal, also could damage the image of the hedge fund industry, which in recent years has attracted hordes of well-heeled investors seeking high returns. The industry has mushroomed to 9,700 funds with $1.7 trillion in assets.

"Psychologically, separating people from their money is generally considered to be a hostile way to behave," said Ron Geffner, a partner at New York law firm Sadis & Goldberg.

Hordes of well-heeled investors? Is that the opposite of a select group of unwashed masses?

by Tanta on 8/02/2007 10:29:00 AM

Murdoch hasn't even taken over the WSJ yet, either:

Subprime Detectives Search In Dark for Next Victim

Um, I thought detectives were supposed to be lookin' for the, um, perp?

There's more:

Lenders Tighten Standards, Pare Loans in Face of Debt

That has recognizable English syntax--if you're not fussy--but I must say that if I have ever pared a loan in the face of debt I didn't know I was doing it at the time.

by Tanta on 8/02/2007 10:02:00 AM

From Reuters:

In its delayed 2006 annual report filed with the U.S. Securities and Exchange Commission, Accredited said that because of adverse conditions in the subprime mortgage industry, it could not give assurance that it would continue to operate as a "going concern."

by Tanta on 8/02/2007 09:06:00 AM

From Reuters, via IHT, "Wall Street often shelved damaging subprime reports":

WASHINGTON: Investment banks that bundle and sell home mortgages often commissioned reports showing growing risks in subprime loans to less creditworthy borrowers but did not pass on much of the information to credit rating agencies or investors, according to some of those who prepared the reports. . . .

Several executives of due-diligence firms said they had reported a slide in loan quality to their investment bank clients but that those mortgages still had been bought up and passed on to investors.

"In some cases we felt that we were potted plants," said Keith Johnson, president of Clayton Holdings, a large due-diligence firm based in Connecticut.

Yeah, well, Keith, I gave up potted-plantdom and took to blogging. It doesn't pay as well, but it's less frustrating.

Having been both in the third-party due diligence business as well as employed by mortgage originators on the sell side and mortgage conduits on the buy side, I'll confirm that yes, there's tons of information that falls under the general heading of "due diligence" that nobody paid any attention to. It isn't just the reports of outside firms like Clayton. Everybody in the chain has loan reviewers, Quality Control analysts, compliance officers, document custodians, and "new loan boarding" specialists at the servicing level whose job it is, day in and day out, to look at this stuff and report on problems in a very "granular" way. Quite often, when I was doing loan-level due diligence, I would have to use my sophisticated Sherlock Holmes-level razor-sharp mind to spot subtle, well-hidden clues of fraud, misrepresentation, or violation of underwriting guidelines.

At other times, I'd flip open the file to see, right on top, page after page of worksheets, printouts, and memos from everyone else who had handled the thing so far indicating some serious problems with it. Discovering what's wrong with these loans involved using the reading skills Miss Buttkicker taught me in the third grade. But the loans were still in the deal, even though three or four people before me had noticed something wrong.

This is the "repurchase" meltdown, folks. Having ignored their own people, the originators sold these things to Wall Street. Wall Street, having ignored the due diligence firms they hired to look at the stuff, went ahead and securitized it. When it started performing just like all the little potted plants said it would, more due diligence firms were hired--or rehired--to go through and find enough "misrepresentations" so that the loans could be shoved back to the originators. I'm guessing that the originators who are being punished the hardest with repurchase requests are the ones who were too stupid to pull all of those worksheets and printouts and memos from the files before passing them on.

As for all those sophisticated institutional investors who read those prospectuses and failed to notice that none of them includes a section on "Due Diligence Findings" for the pool? This little former aspidistra says "Hi!"

by Calculated Risk on 8/01/2007 05:05:00 PM

From CNNMoney: GM, Ford Chrysler see July sales plunge worse than expected, allowing import brands to outsell domestics for first time.

Sales plunged worse than expected at U.S. automakers in July ... Overall sales were weaker than expected for both domestics and imports, as total sales fell 12.3 percent.

Experts and some automakers pointed to concerns about the housing markets and gasoline prices as weighing on American consumers who might have been considering a auto purchases.
...
Toyota Motor also posted a bigger than expected decline in sales, as it saw them drop 7.3 percent ... "The industry stumbled this month, on continued housing weakness," Jim Lentz, an executive vice president for [Toyota]'s U.S. sales unit said in a statement.

These weak sales number are probably a direct result of declining MEW. Although it appears MEW was still relatively strong in Q2, I expect equity extraction to decline significantly in the 2nd half of '07.

by Tanta on 8/01/2007 04:58:00 PM

Fitch downgraded a passel of subprime tranches today, which wasn't much of a surprise: these deals were on the Watch List announced in mid-July. The originators were mostly the usual suspects (Fremont, New Century, First Franklin, WMC). However, Fitch has started supplying some more information in its ratings announcements, to coincide with its updated surveillance methodology. I thought this bit was interesting (enough that I copied it into Excel so that the columns would display properly, you're welcome):

"BL" is "Break Loss," or the percentage loss the security could suffer before a write-down occurred for the tranche in question. So, for the average of all of the securities Fitch took rating action on today, the deal would have to take 37.75% in cumulative losses before a principal loss is taken by the AAA tranches. The BL takes into account subordination, overcollateralization, excess spread, the timing of actual and expected losses, prepayment speeds, and interest rate assumptions.

"LCR" is "Loss Coverage Ratio," or the BL divided by the expected lifetime losses for a given security. The Benchmark LCR here is specifically for seasoned securities (it is not identical to the benchmarks for new issues as it takes into account prepayments of the higher-rated classes). The benchmark LCR is the major factor in determining affirmation or downgrade of a given class.

Looking at just these averages, I'd be inclined to think that some of the affirmations just squeaked by in the B-rated tranches.

by Calculated Risk on 8/01/2007 01:40:00 PM

Yesterday I received an excerpt from a Wells Fargo notice to mortgage brokers suggesting their Alt-A programs were "discontinued until further notice":

"Due to the appetite and demand for this product in the secondary market, we are not able to obtain pricing from our investors."

Now, on the Broker's Outpost (hat tip Cal):

Due to Current market conditions National City is making the following changes effective immediately:

All Expanded Criteria Products/Alt A - No New Registrations and No New Locks