We have a world class secondary market department and they are kind enough to send out weekly updates to us sales monkeys. I like posting it as it is both a great source of technical and anecdotal information. Please let me know your thoughts!
The Week Ahead in the Capital Markets - August 27, 2007
The warehouse lenders took center stage as the mortgage drama took another grim turn. Warehouse lenders (they lend money to mortgage bankers to make their loans) clamped down on their lending policies last week. One said it needed 20% down on any loan that wasn’t headed for a government agency. Another said that it would fund “up to a price of 0%” on any stated income product. Yet another said it was shutting down any mortgage banker holding unsaleable loans. Mortgage bankers scrambled to find financing for their loans, and bank-owned mortgage lenders gained yet another competitive advantage.
It began with sub-prime loans going bad, and then really bad. In March, the problem leapt up the credit curve to Alt-A loans. Then corporate credits, the yen carry trade, and AAA CDOs blew out. The AAA jumbo market fell apart, and we worried that the mortgage industry’s largest player was going under. All along the way, mortgage bankers, REITs, and mortgage investors imploded.
So where and when does it all end? Foreclosure rates are double last year’s pace. Delinquent loans are piling up faster than they have since 1990. Real estate folks by the thousands are losing their jobs. And nearly $1 trillion of adjustable mortgages rates are set to rise in the next year, making all of the above that much worse. A recession would seem almost inevitable, and will certainly occur in the opinions of Angelo Mozilo and many others.
Albert Edwards at Dresdner Kleinwort puts the odds of a recession at 40%, and thinks Fed funds and bond yields might fall below their previous cyclical lows of 1% and 3.1%, respectively (as reported by Barron’s). Stocks are hanging in for the moment, but Edwards thinks they could fall by historic proportions. “Strong and steady growth rates in the U.S. are a Ponzi-like mirage built on an unsustainable mountain of debt." A 0.25% Fed rate cut is already baked in to the market for the September 18th meeting.
Elizabeth Edwards said the problem with John Edwards' fundraising -- you know, compared to the other candidates -- is she can't make him black and she can't make him a woman. That's the same problem Michael Jackson's people have. -- (Jay Leno)