Archive for the ‘Meltdown’ tag
Bold, Creative, Aggressive Policy Action Needed for GSEs to Survive
Brian Bethune, chief U.S. financial economist at Global Insight,
said “Bold, creative, aggressive policy action is needed
for the GSEs to survive in their current capacity as private entities,
and it is needed now.”
He called the capitalization-crisis of Fannie Mae and Freddie Mac
a “potentially dangerous turn of events in the current U.S. business
cycle” that must be “defused swiftly and effectively, because failure to
do so would risk a further meltdown of the housing and
mortgage markets of proportions not seen since the depression era.”
Even CNNMoney Gets it Wrong [Mortgage Industry Blog]
Chris Isidore, CNNMoney.com senior writer is confused. In his overheated article The Trillion Dollar Mortgage Time Bomb he claims that Fannie Mae and Freddie Mac “back” loans when in fact they serve as clearinghouses. “Backing” implies some sort of insurance or guarantee, like FHA’s. Additionally, he claims that conforming loans are characterized by “large down payments.” In fact, here is the entire ill-considered sentence: “Fannie and Freddie primarily back so-called conforming loans, those made to borrowers with good credit and large down payments.” Then he continues with the florid and frightened prose: “Among the nightmares lurking around the corner for the already battered housing and credit markets would be a meltdown at mortgage financing giants Fannie Mae and Freddie Mac.” God, I’m shaking in my shoes…
When a “senior writer” for a financial news site can’t even get it right it’s no wonder the general public is so confused… This kind of ignorant hysteria is what makes people so afraid of buying homes or borrowing money these days. We can only hope that cooler heads will eventually prevail. CNN should pick up writers like Dan “The Mortgage Reports” Green or Liz Freeman “The Daily Pick” if they don’t have anyone more knowledgeable than this guy on their staff.
Wells Fargo has $83 billion in home equity exposure [Blown Mortgage]
In Moody’s affirmation of Wells Fargo’s Aaa credit rating the rating agency pointed to the health of Wells Fargo’s $83.68 billion home equity portfolio as a key driver in the company’s rating. If this portfolio should see degradation then the bank’s rating could suffer, said Moody’s in a press release.
From Moody’s press release about Wells Fargo’s credit rating:
MUMBAI, Apr. 18, 2008 (Thomson Financial delivered by Newstex) — Moody’s Investors Service said Wells Fargo & Co. (NYSE:GWF) (NYSE:JWF) (NYSE:WSF) (NYSE:WPF) (NYSE:WFC) has avoided the market pitfalls that plagued its peers but added that key rating drivers still center on the credit performance of its $83.68 billion home-equity portfolio and its capital trends.
Currently, Moody’s said the credit performance of the portfolio is within its broad expectations.
Moody’s rates WFC’s senior debt at the holding company ‘Aa1.’ The bank’s financial strength rating is ‘A’ and its deposits are rated ‘Aaa.’ The rating outlook is stable.
‘Nevertheless, we continue to revisit our loss estimates in light of the historically weak housing market, especially in California where WFC has a $31 billion exposure,’ the rating agency said.
How are the home equity loans holding up?
There has to be some serious discussion around these home equity loans. What percentage are basically uninsured at this point? Which of these are in a negative equity area? While the loans may still be performing there has to be some serious questioning about their long-term chances of full repayment. Most HELOC’s and seconds were issued during the boom with the belief that they would be repaid during a refinance of the property as values increased. Now with prices depreciating the banks have frozen many of the lines to try to limit exposure - but exposure remains.
I’d love to see a distribution of Wells’ $31 billion California exposure by zip code. That could be an exceptionally telling graph.
Don’t expect the rating to hold
There is no question that the equity portfolio will experience degradation. The question is how much? With nearly half of all exposure in California, it is tough for me to see how Wells can maintain the quality of that portfolio in such a negative equity environment. If Moody’s is pinning their rating on, among other things, the health of this portfolio I would anticipate seeing a downgrade as we get further in to this housing meltdown and prime borrowers who start feeling the affects of the credit crunch, shrinking job market, etc. come under pressure to make the payments on those free-floating equity debts.
