| Not So Benign Neglect
At $213bn, y-t-d Home Equity ABS sales are 51% off last year's pace. Year-to-date US CDO issuance of $274 billion is running 2% below 2006 sales. Fed Foreign Holdings of Treasury, Agency Debt last week (ended 10/10) increased $5.5bn, surpassing $2.0 TN for the first time. "Custody holdings" were up $252bn y-t-d (18.2% annualized) and $317bn during the past year, or 18.8%. Federal Reserve Credit last week declined $3.3bn to $858.3bn. Fed Credit has increased $6.1bn y-t-d and $27.2bn over the past year (3.3%). International reserve assets (excluding gold) - as accumulated by Bloomberg's Alex Tanzi - were up $1.050 TN y-t-d (28% annualized) and $1.189 TN year-over-year (25.4%) to a record $5.861 TN. Credit Market Dislocation Watch: October 10 - Financial Times (Saskia Scholtes): "Banks and investors are still struggling to value mortgage securities backed by subprime home loans more than four months after valuation disputes came to light...
After the Deluge
In addition, companies like Citigroup (ticker: C), Merrill Lynch (MER) and others have to re-equitize their balance sheets, and that process is just beginning. People are way underestimating the dilution this will cause financial-services companies. They are in an awkward position. The faster they take writeoffs, the less capital they have and the less lending they can do. The market has not fully appreciated how much more equity will have to be raised. The first half looks awful, but it doesn't mean the whole year will be awful. I'm a big believer in not trying to anticipate the end of the world. Hickey: Only home mortgages have blown up. There are problems in auto loans, student loans, leveraged-buyout and junk-bond loans. Wherever people were lending, they were lending stupidly. Delinquencies have risen across the board, but defaults haven't come yet.
Fannie label on Denver ominous
Metro Denver's designation as a "declining market" could delay any recovery in the area's long-suffering residential real-estate market, local housing experts said Tuesday. Some mortgage lenders are designating Denver and surrounding counties, excluding Boulder, as a market where prices are declining, upon instruction from Fannie Mae, which backed 41 percent of the nation's home mortgages in the third quarter. Fannie Mae is requiring a 5-percentage-point larger down payment on loans made in declining markets starting in the middle of next month. "When you look at it, it impacts everybody. If you want to sell your property, it becomes more difficult to do that," said Zachary Urban, director of housing counseling with Brothers Redevelopment. First-time buyers and others with minimal savings or equity for a down payment are likely to find themselves knocked out of the market.
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