by Tanta on 7/08/2008 08:09:00 AM

. . . join Burn Outs and Trash Outs in the tabloid lore of the housing bust. Via Housing Doom, we find a 73-year-old man executing his real estate agent because the house he bought in 2005 is no longer worth the original sales price.

Like the recent case of the woman in foreclosure who torched her house, this story says less to me about responses to an RE bust than it does about a simple fact of homeownership in America: the universe of homeowners is big enough that it is a statistical certainty that it contains more than one person with long-term emotional problems and exceptionally poor impulse control that have very little to do with buying or mortgaging a home as such and undoubtedly predate that transaction by decades. There are simply people for whom losing their home (or their "investment") is unbearable stress that pushes them over the edge into violence. I am confident that these people would experience major illness, divorce, unemployment, a scratch on their new car or the neighbor's cat peeing in their yard as unbearable stressors, too, in the right circumstances.

I will nonetheless bet my neighbor's cat's bad habits that editorialists will endlessly recycle this story as a measure of the severity of the housing bust.

by Calculated Risk on 7/08/2008 02:00:00 AM

Press Release: Office Depot Issues Second Quarter Preliminary Outlook

Office Depot ... announced today that it continued to be negatively impacted by the challenging economic environment in the second quarter of 2008.

As a result of additional pressure from weakening business conditions in the second quarter, North American Retail same store sales decreased nearly 10 percent versus the prior year and total Company sales were down slightly.... as sales trends worsened late in the quarter.

... the Company anticipates the economic environment to be difficult over the balance of the year...
emphasis added

It's bad. And it's getting worse ("sales trends worsened late in the quarter").

by Calculated Risk on 7/08/2008 01:17:00 AM

From Andrew Sorkin at the NY Times: Psst! Hear the Rumor of the Day?

“I will hurt the shorts, and that is my goal,” [Lehman CEO] Richard S. Fuld Jr. fumed.

Hey, every time I hear a CEO complain about the "shorts", I think the CEO must have better things to do!

Talk that Barclays was buying even reached Lehman’s trading desks, where the rumor whipped around the office and then reverberated across Wall Street again. Panicky Lehman employees started calling friends outside the firm to find out what was going on inside the firm. One Lehman executive said, “Even my mother-in-law called me.”
...
Absurd rumors can have legs, like the Lehman-Barclays one, which Richard Bove, an analyst at Ladenburg Thalmann, said “ranks up there with the moon is made out of green cheese in terms of its validity.”

I hear rumors frequently; some make sense, some don't. I had a similar reaction as Bove to the Lehman-Barclays rumor.

Today we had rumors circulating about Indymac that proved to be true. I only posted the rumor because of the importance to housing and the credit markets, the stock was halted pending news (although apparently not halted everywhere - weird) and the rumor seemed likely to be true (it was).

As an aside, I met Sorkin at the Milken conference. I thought he was still in high school (just kidding), but I did feel a little old.

by Calculated Risk on 7/07/2008 07:19:00 PM

Last week I linked to a Fortune story: How Lehman lost its way

Here is a video of Roddy Boyd, one of the Fortune story authors, talking about Lehman's McAllister Ranch investment (2 min 11 sec) "a 21st Century Ghost Town", "a whole new fleet of golf carts" ...

by Calculated Risk on 7/07/2008 05:28:00 PM

Paul Jackson at HousingWire looks at the Lehman analyst report on Fannie and Freddie today: Fannie, Freddie Socked by Investor Paranoia

Some of HW’s sources on Monday accused Lehman of “factless fear stoking” in discussing the analysis in the report.

“Given the scrutiny the markets are under, Fannie and Freddie in particular, it’s irresponsible to put something like this out without having clearly done your homework,” said one source, a bank executive that asked not to be named.
...
HW’s sources, however, took issue with Harting’s characterization of the impact of FAS 140 to the GSEs, and said that the securitization structures used by both Fannie and Freddie largely qualified for so-called “de-recognition” — that is, for off-balance sheet treatment — under the proposed revisions to FAS 140 guidelines.
...
That’s not to say that Fannie and Freddie are in the clear; each faces other, more bona fide ills that clearly contributed to the cliff diving observed on Monday as well.

I don't know enough about the details to comment.

by Calculated Risk on 7/07/2008 04:20:00 PM

From Indymac: Indymac Issues Stakeholder Letter. (hat tip John, others! thanks) Excerpts:

As a result of the above, we have made the difficult decision, effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel.
...
Unfortunately, the above actions will necessitate the reduction in our present workforce from approximately 7,200 to roughly 3,400 or so over the next couple of months, which should reduce our operating expenses by roughly 60%.

Added: A few more excerpts from Indymac:

Large losses coming:

Given the continued downward trend in home prices and a resulting increase in our forecasted credit losses and the related downward trend in the pricing of all mortgage related assets in the capital markets, especially mortgage-backed securities where we have experienced significant rating agency downgrades this quarter, we expect our loss for the second quarter to be larger than Q108, but it is difficult at this time to be more precise given the significant uncertainty surrounding accounting estimates, fair value accounting and other accounting matters.

On the value of Indymac assets:

[I]n this environment, where either there are no bids for most of IMB’s mortgage loans and securities or the bid/ask spreads are abnormally wide, “fire-selling” assets would actually deplete capital further.

The entire press release is grim.

by Calculated Risk on 7/07/2008 02:42:00 PM

Schwab is showing trading has halted for Indymac.

Implode-O-Meter is reporting a rumor that Indymac is possibly closing down some wholesale operations.

Indymac employees have been on hold waiting for a company-wide 1:00pm conference call.

This is just a rumor at this point ...

by Calculated Risk on 7/07/2008 01:25:00 PM

From Bloomberg: Freddie Mac, Fannie Mae Plunge on Capital Concerns (hat tip BB)

Lehman Brothers Holdings Inc. analysts said in a report today that an accounting change may force Fannie Mae to add $46 billion of capital and Freddie Mac to add $29 billion.
...
Fannie Mae and Freddie Mac will probably get an exemption from the new FASB 140 rule that would force the companies to bring their off-balance sheet assets back onto their balance sheets ...

And there are concerns about more write downs:

``There's a lot of apprehension about writedowns,'' Tierney, [a credit strategist at Deutsche Bank AG] said. ``If they have writedowns, they have to raise capital. How much do they raise and how easily can they do that? Those are the questions that everybody is asking.''

by Calculated Risk on 7/07/2008 12:38:00 PM

Fannie's (FNM) stock price is off 16%

Freddie (FRE) is off 21%

From CNBC:

Freddie Mac ... dropp[ed] ... on investors concerns over its capital positions amid continued weakness in the housing market. Fannie Mae also dropped sharply over the same issues.

Continued weakness in the housing market is news?

by Calculated Risk on 7/07/2008 11:00:00 AM

From San Francisco Fed President Janet Yellen: Risks and Prospects for the U.S. Economy. Excerpts:

[T]he key questions looking forward are: when will economic activity get back to normal? And when will inflationary pressures moderate? The answers to these questions depend, to a great extent, on how conditions in the housing, financial, and commodity markets evolve.

On housing:

Changes in housing prices are inextricably linked to household wealth, which in turn affects consumer spending, as well as prospects for housing construction. Unfortunately, it appears to me that there are at least three reasons for thinking that housing prices have further to fall. First, the ratio of house prices to rents—a kind of price-dividend ratio for housing—still remains quite high by historical standards, despite having fallen from its historical peak reached in early 2006. That suggests that further price declines may be needed to bring housing markets into balance. Second, inventories of unsold homes remain at elevated levels. This "excess supply" of available homes will put downward pressure on housing prices. Indeed, these inventories are likely to directly depress construction activity, since there is little point in building new homes when there is already a large backlog of unsold homes. Third, the futures market for house prices predicts further declines in a number of metropolitan areas this year. In particular, the Case-Shiller composite index for home prices shows a 15 to 20 percent year-over-year decline in the second half of this year. The bottom line is that construction spending and house prices seem likely to continue to fall well into 2009.
emphasis added

Her outlook for housing remains very negative. See Yellen's speech for comments on the financial markets and commodity prices.