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AP
Subprime Mortgage Woes Spreading
Wednesday August 29, 2:07 am ET
NEW YORK (AP) -- The subprime mortgage crisis is spreading to a somewhat unexpected place: homes costing more than $500,000.
As lending has rapidly gotten more restrictive for borrowers taking out large loans, sales of expensive homes have fallen sharply around the country during what should be one of the busiest seasons for buyers and sellers, mortgage bankers and real estate agents say.
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Given the troubles in the subprime sector, investor appetite for all types of mortgage loans not guaranteed by housing finance agencies has nose-dived.
Banks until recently were able to offload the risk of many jumbo mortgages by selling the loans to investors. But now, as investors burned by the subprime debacle have become extremely picky about what they will buy, banks are having to keep more of these loans on their own books and as a result are charging higher rates.
Some lenders -- such as Countrywide Financial Corp. -- have made a point of saying they're now most focused on making loans that can be guaranteed by Fannie and Freddie.
Other lenders have simply tightened up their lending standards, for example by no longer making jumbo loans to lenders who can't fully document their income, even if they make large down payments and have stellar credit histories.
The banks that are still making jumbo loans are charging substantially higher rates to compensate for the lack of investor demand. Borrowers who could have gotten rates as low as 6.5 percent in June are now having to pay as much as 9 percent.
But aside from the financial impact of higher rates, in certain high-priced real estate markets, the effect of the suddenly tighter lending environment is more psychological, mortgage bankers and real estate agents say, as buyers and sellers alike don't want to plunge into an uncertain future.
"Showings are down, contracts written are down, and sellers are just as backed away as buyers are," said Lou Barnes, a partner in mortgage bank and brokerage Boulder West Financial Services in Boulder, Colo. The company arranges for financing on many higher-priced condominiums and houses in the state.
"I think the psychological damage is worse than the financial damage" which is already bad enough, he said. Even for buyers who have plenty of cash or can easily afford higher mortgage rates, the sudden change in the financing environment reduces "the ardor to buy a house unless you have to," he adds.
With numerous buyers and sellers sidelined, the higher cost of big mortgages is bound to put downward pressure on home prices should the lending environment stay tight for a long period of time, said Ellen Bitton, president of Park Avenue Mortgage, a mortgage bank and brokerage that does business in several states, including New York, Florida and Utah.
In New York, the most pronounced effect so far has been at the very top end of the market, for properties priced $25 million and above, said Dolly Lenz, vice chairman with Prudential Douglas Elliman.
"Every single person I have at the highest end is on hold. They're going to wait and see what happens," she said. "It has nothing to do with them being able to afford" properties or not, Lenz added. "It's a confidence thing. They somehow feel poorer, whether they are or not."
In California, where the median home price is well above $500,000, jumbo mortgages are as much as 44 percent of all mortgages issued in certain metro areas, according to data from First American LoanPerformance.
In and around San Francisco, where the median home price is about $1.1 million, the tougher financing environment has created a "hesitancy" and has led to some canceled escrows for buyers around the $1 million range, said Rick Turley, president of the San Francisco and Peninsula Region for Coldwell Banker Residential Brokerage.
Schwere Vorwürfe nach Sachsen-LB-Verkauf
Auch nach dem Notverkauf der Landesbank Sachsen kommt die CDU/SPD-Regierung des Bundeslandes nicht zur Ruhe. Kontrolleure erheben schwere Vorwürfe gegen den Bankvorstand und das sächsische Finanzministerium: Sie seien regelrecht belogen worden. Unterdessen wurden weitere riskante Finanzmanöver in Höhe von 46 Milliarden Euro bekannt.
Seit Wochenbeginn gehört die angeschlagene Sachsen LB der finanzstarken Landesbank Baden-Württemberg, aber die riskanten geheimen Finanzmanöver der vergangenen Monate wirken nach. Wie am Mittwoch bekannt wurde, hat der Bankvorstand sich nicht nur über die Dubliner Tochtergesellschaft außerhalb der Bilanz am US-Hypothekenmarkt engagiert.
Parallel zu den irischen Fonds sind seit 2003 auch in Leipzig unter dem Code "Dublin II‘‘ weitere Engagements vom Vorstand unter Führung des damaligen SachsenLB-Chefs Weiss initiiert worden.
13 Zweckgesellschaften außerhalb der Bilanz
Der CDU-Politiker, so berichten einzelne Verwaltungsräte, habe Informationen zuweilen nur "nach massiven Kämpfen‘‘ freigegeben - und dann auch nur "zur Einsicht‘‘. [ Politiker und Geld - tolle Mischung. Malko07 ]
Auch aus Kreisen der Anteilseigner, vornehmlich sächsische Landräte und Sparkassendirektoren, die Sonntagabend in einer kurzfristig einberufenen Sitzung dem Verkauf der Sachsen LB zugestimmt hatten, werden der Minister wie auch der Bankenvorstand inzwischen scharf kritisiert: "Wir sind eindeutig belogen worden‘‘, sagt etwa Petra Köpping (SPD), die Landrätin des Kreises Leipziger Land.
Die Auseinandersetzungen im Verwaltungsrat gehen zurück auf das Jahr 2005, als die Wirtschaftsprüfungsgesellschaft KPMG einen von der Bundesanstalt für Finanzdienstleistung (Bafin) in Auftrag gegebenen Bericht zu den bereits damals umstrittenen Dublin-Geschäften vorlegte.
"Nur noch Chaos und Panik"
Der Prüfbericht, der im Juli 2005 der Bank zugeleitet wurde, endete mit einer "schwerwiegenden Beanstandung‘‘ der bankeninternen Risikoeinschätzungen zu den Dubliner Aktivitäten, auch wurde die "mangelnde Transparenz‘‘ der Spekulations-Geschäfte moniert - die setzte sich im Verwaltungsrat fort.
So durften die Mitglieder nach den Worten eines Verwaltungsrats erst auf ihr eindringliches Bitten hin Einsicht in den Prüfbericht nehmen. Die schriftlichen Anmerkungen der Bankenaufsicht bekamen die Verwaltungsräte zunächst gar nicht zu Gesicht. Das änderte sich erst, als ein Mitglied des Gremiums schriftlich beim Präsidenten der Bankenaufsicht, Jochen Sanio, intervenierte.
Die Kontrolleure beklagen, die Verantwortlichen in Bankenvorstand und Landesregierung hätten immer nur "nach Gutsherrenart‘‘ informiert. Und das bis zum bitteren Ende, als intern "nur noch Chaos und Panik‘‘ geherrscht habe, wie ein Bänker vermutet. "Die Größenordnung des Risikos‘‘, so Landrätin Köpping, "war uns nie klar‘‘.
(SZ vom 30.08.2007) www.sueddeutsche.de/wirtschaft/artikel/557/130331/
Technical Analysis
Why We Can't Avoid a Recession
By Richard Suttmeier - Street.com
8/29/2007
As the woes in the housing market worsen, the evidence builds that the U.S. economy will enter a recession. I'd even go so far as to say (and I have said) that a recession now appears unavoidable. I'll review the levels the major indices are likely to drop after I review my case for why they'll get there.
The stock market decline off highs set in mid-July was the first leg of the 2007 bear market. The strong rebound off the Aug. 16 lows was fortified by the Federal Reserve's preopen Aug. 17 cut to the discount window rate, but rate cuts won't make bad loans solvent.
My recession call is based on the stresses I see building in the banking system by looking under the hood of the FDIC Quarterly Banking Profile. The spread of bad loans has gone past subprime. A recession now seems as unavoidable in 2008-2009 as in 1990-1991, the last time the U.S. economy experienced two quarters in a row of negative GDP growth.
In the past 25 years, the FDIC has handled more than 1,600 bank failures. The vast majority occurred during the last real estate crunch in the late 1980s and early 1990s. This cost the industry and taxpayers approximately $150 billion, according to the FDIC.
Today, banks may be better capitalized, but the exposures are much worse. The explosion of nontraditional mortgage loans and the overuse of derivatives are likely to cost the industry and taxpayers much more. I have been reading about tabs totaling more than $1 trillion.
When I make a bear market call, I don't use purely technical indicators, because they're backward-looking, to the tune of a 20% decline. I prefer to use a combination of fundamentals, technicals and levels from my proprietary models. And here they are.
Stretched valuations. On May 23, eight of 11 market sectors were overvalued by more than 10%, according to ValuEngine, with four of these overvalued by more than 20%. That's the most extended I have ever seen measured on ValuEngine.
And keep in mind that with stocks in this overextended condition, the Dow Jones Industrial Average is more than 20% above its 200-week simple moving average.
At the beginning of the year, I showed the Dow's annual pivot at 12,492, with semiannual resistance at 13,375. With or without this strength, I show risk back to the annual pivot at 12,492, and risk to the 200-week simple moving average later in the year, which was at 10,462 and rising.
Back in March, I incorrectly declared the death of the bull market with the February Dow high of 12,795.93. But credit spreads remained tight, fueling continued merger-and-acquisition and private-equity activities.
On May 23, I made my second attempt at timing the top. On CNBC's "Closing Bell," I predicted that the S&P 500 would not surpass its March 24, 2000, high of 1552.92. When the Dow was at 14,000, I said that solid-gold earnings were built into the 14K Dow. When the Dow was around 13,500, I said that the next 1,000 points would be down not up, and after we got that 1,000 points down, I looked for the first bear market correction. We got it, helped by the Federal Reserve's cut.
Positive technicals can win the short-term battles, but the bearish fundamentals win the war.
| Market | 28-Aug Price | YTD Gains | 2006 Close | 16-Aug Lows | 2007 Highs | % At YTD Lows | % High To Low | At the Highs |
| The Dow | 13,041.85 | 4.60% | 12,463.15 | 12,518.00 | 14,021.95 | 0.40% | -10.70% | 12.50% |
| S&P 500 | 1,432.36 | 1.00% | 1,418.30 | 1,371.60 | 1,555.83 | -3.30% | -11.80% | 9.70% |
| Nasdaq | 2,500.64 | 3.50% | 2,415.29 | 2,387.00 | 2,724.74 | -1.20% | -12.40% | 12.80% |
| Utilities | 477.01 | 4.40% | 456.77 | 460.68 | 537.12 | 0.90% | -14.20% | 17.60% |
| Transports | 4,732.98 | 3.80% | 4,560.20 | 4,486.60 | 5,487.05 | -1.60% | -18.20% | 20.30% |
| Russell 2000 | 769.75 | -2.90% | 792.75 | 738 | 862 | -6.90% | -14.40% | 8.70% |
| Semis (SOX) | 476.08 | 1.90% | 467.04 | 465.38 | 549.39 | -0.40% | -15.30% | 17.60% |
The above table shows that at the Aug. 16 lows, all year-to-date gains were wiped out. Only the Dow Industrials and Dow Utilities stayed fractionally positive.
A pure technician could view the wipeout of the 20.3% gain in the Dow Transports as the sign of a bear market.
Observe that the Russell 2000 Futures lagged on the upside and went to being 6.9% down on the year at the Aug. 16 low. It's worth noting here that the Dow Utilities, Dow Transports and Russell 2000 Futures currently are below their February highs.
Let's review the indices individually.
Dow: The first leg of the bear market on this index showed up as a decline of 10.7%, which came within 0.4% of the 2006 close and wiped out a year-to-date gain of 12.5%. Annual support is 12,492, with my annual pivot at 13,036, quarterly resistance at 13,472 and semiannual resistance at 13,925.
| The Dow |
| Source: Reuters |
S&P 500: The high was less than 3 points above the March 24, 2000, high. The bear market hit its first stride when this index fell by 11.8%, putting the S&P 500 negative by 3.3% for the year. My annual support is 1265.5. The quarterly pivot is 1466.5 and the annual pivot is 1482.3. Quarterly resistance is at 1525.1.
Nasdaq: A 12.4% slide marked the first leg of the bear market for this index. The Nasdaq fell to being down 1.2% on the year, below my annual pivot at 2483. My quarterly pivot is 2584, with quarterly resistance at 2648.
Dow Utilities: The first leg of the bear market was evidenced by a 14.2% drop, nearly wiping out a year-to-date gain of 17.6%. The Utilities index stayed just 0.9% above its 2006 close. Annual supports are 389.28 and 382.15, with quarterly and semiannual resistances at 507.22 and 535.32.
Dow Transports: The first leg of the bear market hit with a clawing of 18.2%, wiping out a year-to-date gain of 20.3%, as Transports dipped into negative territory by 1.6% for the year. Annual support is 3739, with my quarterly resistance at 5138 and semiannual resistance at 5400.
| Dow Transports |
| Source: Reuters |
Russell 2000 Futures: Small-caps went 6.9% negative for the year on Aug. 16. Annual support is 665.76, with my annual pivot at 763.20 and quarterly resistance at 859.97.
Philadelphia Semiconductor Index: The first leg of the bear market hit with a drop of 15.3%, wiping out a year-to-date gain of 17.6%, as the SOX dipped into negative territory by 0.4% for the year. I do not show a longer-term support. Quarterly resistances are 517.17 and 533.33. A weekly close below the 200-week simple moving average 463.12 would be a sign of the bear for semiconductors.
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