Home Mortgage Aid

Countrywide was downgraded to sell this morning by Merrill Lynch, citing the increased uncertainty in the current mortgage market. Margin calls and forced sales could result in more pressure, which would only make matters worse for a company already dangerously exposed.

CFC closed at 24.46 yesterday after an 8% drop, and is trading at 23 this morning in premarket.

Depending on who you ask, holders of LEND were treated to either a great ride or a bad stomachache yesterday. The stock shot up over 50%, from a Thursday close of $6.50 to a peak around $10, then sold off gains to $8.66. The main reason for this rocket was an announcement that LEND had received approval from most of the states in which it operated to sell their business to Loan Star. Loan Star is a private firm which had offered a $15 / share price way back. This news came out during the day on Friday. The real intrigued occurred after hours, when two juicy bits of news hit the wires. 1) LEND is looking at a loss somewhere between 40 and 60 million this quarter (this one’s not really a surprise given the current status of the mortgage industry; 2) Loan Star is backing out of their contract to purchase LEND at $15. #2 shouldn’t surprise anyone — if that deal were going to go through, the stock would be trading a lot closer to $15 than it is currently. Obviously the big cats didn’t think it was going to happen. Yesterday, LEND ended up dropping over $4 from its 8.66 close in after hours trading — wiping out the gain of the day and then some.

Hopefully not too many people tried to hold on to LEND over the weekend — this chart has the classic look of “pump and dump”. I wish I had taken my own advice and shorted it. This stock will likely go to zero in a hurry. I wonder what that shill Jim Cramer will say about it now. He called the deal ‘ironclad’, but as I recall from history class, ironclads sank all the time in the 19th century. Maybe that’s what he meant?

Accredited Home Lenders Holding Company

Currently trading at $7, supposedly going to be bought for $15…more to come

http://finance.yahoo.com/q?d=t&s=LEND

Cramer insists the $15 will go through unless Loanstar goes bankrupt.

Click Here for the The Street video

Interesting discussion of options from Google Finance

Shortly after the opening bell yesterday, BNP Paribas announced they were pausing three of their largest funds due to uncertainty in the U.S. home lending market. BNP Paribas is not the first bank to announce problems stemming from the rising tide of loan problems here, but they are the most recent. Other European establishments have faced similar hurdles in the past few months. With news of the Dow collapse, other global markets followed suit in Europe and Asia. To counter these effects, the European Central Bank pumped $130 billion into the system to try and up liquidity. Think about that for a moment — how would you like to borrow money at 4%?? What a nice dream. Anyhow, the Fed followed suit today, putting about $25 billion into play. It was an interesting turn of events for the Fed, considering their decision not to cut interest rates just a couple of days ago. Perhaps Bernanke and the Reserve are beginning to recognize an impending crisis that others have been predicting for months. As of this writing, the Dow is off another 100 points or so, but seems to have stabilized with the news of the bank support. Stay tuned, as this may only be a temporary solution for a collapsing market.

Yesterday (August 7th), the Federal Reserve announced plans to keep the interest rate at 5.25%. In the wake of some turbulence on Wall Street, and growing storm clouds in the mortgage industry, their decision was somewhat surprising. After analysis of the somewhat cryptic message, the general consensus seems to be not to expect any cuts unless the Markets worsen considerably. That actually seems to be a real possibility, if you believe what some are saying (see Jim Cramer). The official statement from the Federal Reserve went like this:

“Although the downside risks to growth have increased somewhat, the committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the outlook for both inflation and economic growth, as implied by incoming information.”

Even by the standards of the Federal Reserve, that’s pretty darn cryptic!

Here’s an article from Reuters with a more human side of the foreclosures Californian homeowners are now facing. It’s not that I mean to be coldhearted, but in this instance we have another person who signed on the dotted line without understanding what she was agreeing to. I do believe there are predators, even in the loan industry (imagine that!) who bamboozled this woman into agreeing to refinance her loan. Those people should be identified, charged, and convicted for their crimes. But back to the greater issue of California housing prices, it seems the jury is still out on how far into prime the defaulting will extended, and what overall effect that will have on the 8th largest economy in the world. Contrary to what George W. Bush seems to think (see the energy broker / Enron fiasco from earlier in his administration) the economy of the United States is heavily tied to that of California. At this point, housing prices are remaining stable in the larger areas, unemployment is in check, and everything seems rosy. We’ll see if it lasts.

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The San Diego Union Tribune has a front page story this morning (Sunday, August 5th) about the increasing rate of mortgage defaults and the implications for homeowners in the San Diego area. While default rates are skyrocketing — as they are across the country — the current rate of defaulted homes on the market is only around 10%. Certainly, this represents a marked increase versus last year, however, it’s well off the peak of 15% which was reached twice during the 1990s. As we have yet to see the trough of defaults (or apex, depending on which perspective you’re viewing the market), it makes sense for potential home buyers to wait and observe the extent of the damage. According to the experts quoted in the article, the current defaults have not yet impacted the market strongly enough to allow widespread value. Homes are still selling for market price and without any significant discounts. While a couple of homeowners have found diamonds in the rough, this is still a rare phenomenon in San Diego County. If default/re-listed homes reach 20-30% of the market then it’s likely significant value will be seen.

San Diego Foreclosures

According to Reuters, American Home Mortgage will be closing permanently this Friday. The news broke today after an email from CEO Michael Strauss to employees was widely circulated. The company now faces the lenders cutting off access and will likely have liquidate assets to have any hope of reemerging as the goliath it once was. At least one analyst, Steve DeLaney of JPM Securities, suggested that bankruptcy would be the next step.

Another one bites the dust, and the number of lenders shutting their doors only threatens to increase in the coming weeks.  It’s as if the U.S. mortgage community is about to face a hurricane of epic proportions. There is a gentle breeze blowing now, but it will only get stronger…board up your windows, lock your doors, batten down the hatches and pray for the best.

American Home Mortgage shares were down sharply today after a discouraging news release that stated multiple problems. Lenders are demanding more hard currency backing, the dividends have been delayed, and write-downs are increasing. Shares fells as far as $6,25 today, off the previous close of $10 and reaching levels not seen since 2003. The stock is currently halted for trading.

The collapse of American Home Mortgage is only the most recent sign of a snowballing phenomenon among lending corporations. Triggered by rising mortgage defaults, this impending panic appears to be gathering steam. Initially, investors only needed to be concerned about those corporations representing the greatest risk in home mortgages — those that were offering sub prime rates to poor credit households with little collateral. American Home Mortgage, on the other hand, is thought to be a more trustworthy lender with business dealings largely based in the prime market. Originally AHM specialized in prime lending and good credit clients, but apparently in recent months they too had fallen victim to the tantalizing siren call of high risk / high reward lending practices.