PrefBlog

This is way, way, way WAY off topic, but I grew up with Vivien Leigh telling the Beatrix Potter stories (on 45s – if anybody remembers what those were) and have been looking for re-releases for years. Found ’em! The best is Peter Rabbit.

Yet another major US housing subsidizer is in trouble:

The Federal Housing Administration, which insures mortgages with low down payments, may require a U.S. bailout because of $54 billion more in losses than it can withstand, a former Fannie Mae executive said.

“It appears destined for a taxpayer bailout in the next 24 to 36 months,” consultant Edward Pinto said in testimony prepared for a House committee hearing in Washington today.
…
The FHA program’s volumes have quadrupled since 2006 as private lenders and insurers pulled back amid the U.S. housing slump, Pinto said. The jump has left the agency backing risky loans and exposed to fraud in a “market where prices have yet to stabilize,” he said.

Representative Scott Garrett, a New Jersey Republican, introduced legislation this month to boost the FHA’s minimum down payment to 5 percent from 3.5 percent to help shore up the agency’s insurance fund, a move that could add to the housing market’s burdens as it struggles to recover.
…
Falling prices will push the FHA’s single-family fund’s reserves below a 2 percent cushion required by Congress, Commissioner David H. Stevens, who will also speak today, said last month. “Under no circumstances will a taxpayer bailout be needed” because the shortfall will be cured over time, he said.

The idea the FHA needs a rescue is “just plain wrong,” Stevens said in an Oct. 6 letter to the Wall Street Journal. That’s in part because the FHA’s accounting method mean its reserves are enough to cover more than 30 years of projected losses, assuming no revenue from new business, he said.

FHA’s total reserves exceed $30 billion, or more than 4.4 percent of its insurance, according to Stevens. The loan- insurance ratio, which compares the reserves with the loans insured, was 6.4 percent a year ago, government data shows.
…
Official figures on FHA’s reserves as of Sept. 30 won’t show a shortfall when released because “the assumptions used will be overly optimistic relative to loss mitigation resulting from both loan modifications and recent and expected underwriting changes,” Pinto said.

In the early days of MLEC (remember MLEC? It was going to save the world from a possible credit crunch) I argued that the only way it could work would be if it had the plan of buying wonderful assets from distressed SIVs. Now that PPIP is the acronym of the day, it looks like I was right:

Starwood Capital Group LLC and TPG’s agreement to buy $4.5 billion of Corus Bankshares Inc.’s real estate assets shows investors are ready to bet on distressed property — as long as the U.S. helps finance the deals.

The private-equity firms led a group that won the auction for loans and properties of the failed Chicago lender, offering $554 million, the Federal Deposit Insurance Corp. said Oct. 6. They will take a 40 percent stake and manage the portfolio, while the FDIC keeps 60 percent and lends the buyers as much as $2.39 billion to complete the sale.

The investors, who are paying about 60 cents on the dollar, beat out seven other bidders.

Some may quibble over my equating these distressed mortgages with “wonderful assets” … but with vendor financing of over 80% of the price on a non-recourse basis … well, it works just like that extra glass of beer in a pick-up bar near closing time, you know?

THUMP! The preferred share market got whacked again today, with PerpetualDiscounts down 43bp and FixedResets losing 16bp on good volume. I am pleased to see a lot of volatility evidenced in the composition of the performance table: there were fifteen index included issues losing more than a point (total return), but five gained more than this. Increasing volatility means more trading chances!

The new PWF 5.80% Straight starts trading tomorrow … that should be fun.

This entry was posted on Thursday, October 8th, 2009 at 7:29 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.