bank run blog

Cleaning house before their outright nationalization, Fannie Mae announced a shakeup in senior management this afternoon after the markets closed. The Financial Times reports :

“Fannie Mae, the US government-sponsored mortgage financier, yesterday unveiled a management restructuring that put new executives in charge of its plan to improve capital management and cut credit losses.

‘As we move through the bottom of this cycle, maintaining capital, managing credit and driving revenues are priorities and we have to organise staff accordingly,’ Daniel Mudd, Fannie Mae chief executive, said.

Fannie said Stephen Swad, its chief financial officer, had chosen to leave the company after little more than a year to pursue work in the private equity field, while Enrico Dallavecchia, chief risk officer, was leaving to pursue other finance and risk management opportunities.”

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The coverage by the Associated Press included a rare quote from a bearish analyst, who puts the losses at the GSEs at $1 trillion or more :

“Other analysts, however, continue to express a gloomier outlook. Peter Schiff, president of Euro Pacific Capital in Darien, Conn., a longtime bearish investor, predicts that the companies’ losses could eventually hit $1 trillion or more as housing prices fall far further than most analysts expect.

‘The end result is probably going to be that they go bankrupt and the government nationalizes the function,’ Schiff said. ‘There’s no way they can survive.’

Concern also has been growing that a government rescue of Fannie and Freddie could be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares. The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.”

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The New York Times web site features a photo essay on partially constructed and otherwise abandoned residential real estate projects in California. The Times writes, “In the three years since housing peaked in Merced, the median sales price has fallen by 50 percent.”

“A sidewalk leads to nowhere in one development in Merced.”

“Mayor Wooten at the stagnant pool of a foreclosed home she listed.”

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New York Times : Where Housing Crashed the Hardest

This segment from the WXMI Fox 17 in West Michigan discusses the growing phenomenon of homeowners who owe more than their home is worth deciding to “walk away” leaving abandoned homes to be foreclosed upon by lending institutions.

“By the time they hit the wall on making their mortgage payment, it means everything else has pretty well been depleated in terms of other ways to get money; their retirement savings, their checking account, credit cards have been tapped.” Joel Rahn, Byron Center Bank

The New York Post reports that managers of a sovereign wealth fund from an unknown country have hired an American real estate firm signaling the SWF’s intention to purchase hundreds if not thousands of foreclosed bank owned homes in California, Nevada, Arizona and across the US.

The Post writes that the wealth fund has set aside $29 billion to buy bank owned foreclosed homes in the US at half their original value. In fact, the Post writes that the fund has made an offer to purchase $2.5 billion of bank seized properties at 40 cents on the dollar recently and also negotiated an offer to purchase $2 billion worth of bank owned single family homes for 31 cents on the dollar.

The company hired by the foreign investment entity to research the market of foreclosed upon family homes in the US, Field Check Group, has refused to disclose the identity of the fund.

The Post reports that sovereign wealth funds of countries such as Abu Dhabi (with $875 billion in investable reserves) and Norway (with $391 billion in investable reserves) are positioned to “scoop up” thousands of bank owned properties because, “The depressed value of the US dollar makes the homes a bargain, and the funds have deeper pockets.”

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New York Post : Lost Sovereignty

With its government “backstop” secure, Freddie Mac this morning announced huge losses for the second quarter. Analysts believe that the magnitude of the problems at the GSEs mean that the next several quarters will look worse, not better. The Associated Press is reporting :

“Freddie Mac on Wednesday posted a second-quarter loss that was more than three-times larger than Wall Street expected as a huge number of borrowers with good credit fell behind on their exotic and risky mortgages.

The losses were concentrated in a handful of state — California, Florida, Nevada, and Arizona — where home prices shot up the most and are now falling precipitously.

The dismal financial results come just weeks after the government threw a financial lifeline to Freddie and its sister company Fannie Mae to ward off fears the pair could collapse and take down the U.S. mortgage market. Together, the two hold or guarantee nearly half of outstanding U.S. mortgage debt.

Freddie lost $821 million, or $1.63 a share, for the quarter that ended June 30, compared with a profit of $729 million, or 96 cents a share, in the year-ago period.”

Reuters reports that Freddie is cutting its dividend by more than 80 percent :

“Freddie Mac said it was setting aside twice as much money for bad loans and made plans to slash its dividend by at least 80 percent. Its shares fell 16 percent, while bigger rival Fannie Mae declined 12 percent.”

The news about the GSEs put a chill on the entire financial sector :

“Among banks, shares of Bank of America Corp fell 2.8 percent to $32.65. Freddie Mac, which also announced plans to slash its dividend, doubled its reserves for losses on delinquent loans and home foreclosures.”

Associated Press : Freddie Mac swings to 2Q loss

Reuters : Financials hit Wall Street after Freddie loss

The latest housing data is out, with May’s figures the worst on record. The Associated Press reports that the S&P Case-Schiller 20-city index registered a 15.8 percent drop :

“Home prices tumbled by the steepest rate ever in May, according to a closely watched housing index released Tuesday, as the housing slump deepened nationwide.

The Standard & Poor’s/Case-Shiller 20-city index dropped by 15.8 percent in May compared with a year ago, a record decline since its inception in 2000. The 10-city index plunged 16.9 percent, its biggest decline in its 21-year history.

No city in the Case-Shiller 20-city index saw price gains in May, the second straight month that’s happened. The monthly indices have not recorded an overall home price increase in any month since August 2006.

Home values have fallen 18.4 percent since the 20-city index’s peak in July 2006.”

The most extreme devaluations were observed, as usual, in the regions that saw the most expansion after 2002. According to the Los Angeles Times :

“The biggest annual price declines remain concentrated in Sunbelt cities that experienced housing bubbles. These are the cities with the largest annual declines in prices:

Las Vegas -28.4%
Miami -28.3%
Phoenix -26.5%
L.A. -24.5%
San Diego -23.2%”

Associated Press : S&P: Home prices drop by record 15.8 pct. in May

Los Angeles Times : L.A. home prices falling at 24.5% annual rate

Realty Trac reported today that 739,714 homeowners received notice that their homes were in foreclosure in the second quarter, up 13.8 percent compared to the first quarter of 2008. Foreclosures are up a 121 percent compared to the same quarter in 2007.

Bank seizures in the first half of the year increased by 154 percent to 370,179 from the same period in 2007. 48 of 50 states and 95 of the 100 largest US cities had year-over-year increases in foreclosure filings in the second quarter. Realty Trac reported that the following states saw the largest increases in foreclosures last quarter;

Nevada: one in every 43 households received a foreclosure notice in the quarter

California: one in every 65 households received a foreclosure notice in the quarter

Arizona: one every 70 households received a foreclosure notice in the quarter

Also among the top ten states where home owners receive foreclosure notices were Florida, Colorado, Ohio, Michigan, Georgia, Massachusetts and Illinois

Bloomberg quotes Bill Gross, manager of the bond fund at Pacific Investment Management, who said “About 25 million U.S. homeowners risk owing more than the value of the their homes.” Bloomberg writes;

“One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction.”

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Reuters :RealtyTrac report says Q2 home foreclosures up 13.8 pct from Q1
Bloomberg : U.S. Foreclosures Double as House Prices Decline

Real estate statistics published today document the continuing implosion of the US housing market, which is now subject to a whole new range of external pressures from the banking crisis. Bloomberg has this morning’s NAR data :

“Sales of previously owned U.S. homes fell in June to the lowest level in a decade as tumbling real- estate prices and consumer confidence signaled no end in sight to a housing recession now in its third year.

Resales dropped 2.6 percent to a lower-than-forecast 4.86 million annual rate from a 4.99 million pace the prior month, the National Association of Realtors said today in Washington. The median home price dropped 6.1 percent from June 2007.

The housing slump may deepen further after mortgage rates climbed to the highest in a year this month and turmoil engulfed Fannie Mae and Freddie Mac, which account for more than two- thirds of new home-loan financing. A record 18.6 million houses, apartments and condominiums stood empty in the last three months as the industry’s recession reverberated through communities, separate figures showed today.”

The combination of falling prices, moribund sales, and a steady stream of foreclosures coming onto the market every month has disastrous implications for inventories. The Associated Press reports :

“The drop in sales pushed inventories of unsold single-family homes and condominiums to 4.49 million units, up by 0.2 percent. That represented a 11.1 month supply at the June sales pace, the second highest level in the past 24 years.”

Bloomberg : U.S. Economy: Home Resales Decline to 10-Year Low

Associated Press : Existing home sales fall 2.6 percent in June

Wachovia, the nation’s fourth largest bank, reported a record second quarter loss of almost $9 billion this morning, becoming the only one of the five biggest US banks to “miss Wall Street analysts’ expectations”. Reuters reports :

“Wachovia Corp on Tuesday posted an $8.86 billion second-quarter loss, slashed its dividend and announced 6,350 job cuts after losses tied to mortgages soared.

Its shares fell $1.67, or 12.7 percent, to $11.51 in premarket trading.

The net loss attributable to common stockholders equaled $4.20 per share and compared with a profit of $2.34 billion, or $1.22, a year earlier.

Results included a $6.1 billion write-down of goodwill, and reflected a $4.2 billion increase in reserves for bad loans.

The Charlotte, North Carolina-based bank slashed its quarterly dividend 87 percent to 5 cents per share from 37.5 cents, and has now lowered it 92 percent this year.”

Wachovia has been battered since its unwise acquisition of Golden West Financial Corporation, a subprime and Alt-A mortgage specialist that marketed the ill-fated ‘Pick-A-Payment’ marketing twist. According to the Associated Press :

“Wachovia recently discontinued offering the ‘Pick-A-Payment’ loan option, which allows customers to pay a less-than-full interest payment on all new home loans. The bank also had hired The Goldman Sachs Group Inc. to conduct an analysis of its loan portfolio and advise it on strategic alternatives.

Late Monday, Wachovia announced plans to leave the wholesale mortgage lending business. And beginning Friday, the company will no longer offer mortgages through brokers, joining other lenders making similar moves to exit the troubled sector.”

The article continues, noting that the bank recently turned to a consummate insider in an unsuccessful effort to right the ship :

“Earlier this month, Wachovia named former Treasury Undersecretary and Goldman Sachs Group Inc. executive Robert Steel as chief executive, replacing the ousted Ken Thompson. Within a week of being on the job, the bank’s shares tumbled to a new 17-year low.

In premarket trading Tuesday the stock shed nearly 12 percent to $11.80. That level would mark the stock’s lowest price since roughly June 1991.”

Reuters : Wachovia loses $8.86 billion, slashes jobs

Associated Press : Wachovia has $8.9B loss, cuts 6,350 jobs, dividend

Wachovia, which is scheduled to report tomorrow, released some news after the closing bell this afternoon. Reuters reports :

“Wachovia Corp, the fourth-largest U.S. bank, on Monday said its main mortgage unit will stop offering home loans through brokers this week, joining a growing number of lenders to curb wholesale lending.

‘We thought it was important to focus on customers who have relationships with the bank, and in geographies where Wachovia has branches,’ spokesman Don Vecchiarello said. ‘Based on that, we’ve decided to discontinue doing business through our wholesale mortgage channel as of July 25.’”

Reuters : Wachovia mortgage unit halting loans via brokers

CNN Money : Earnings Preview: Wachovia 2Q results