Subprime Mortgages

  • 08 Feb 2008 at 3:32 PM
  • Banks

Time To Go Long Subprime? Bear Stearns Shorts It For $1 Billion

Bear Stearns has more than $1 billion of short positions on subprime, up $400 million from the end of November, Bloomberg reports. Of course, since Bear Stearns got the subprime trade so wildly wrong last year, people are already wondering if this might be a signal that it is time to go long subrime.
Over at The Big Picture, Barry Ritzholz writes, “While I do not expect us to be done with the subprime slime yet, I do get a ‘Is this a bottom indicator?’ sense from Bear on this.”
JPMorgan Chase, which emerged relatively unscathed from the credit market debacle, is apparently taking the opposite position. Yesterday Jamie Dimon was reported to have said that the bank plans to expand its role in the subprime mortgage business. Goldman is also rumored to have reversed it’s position on subprime, taking a net long position.
Bear Stearns Is `Short’ Subprime Mortgages $1 Billion [Bloomberg]

Was The Subprime Bubble Built On Borrower Speculation?

In the official version of the subprime mortgage mess, the villians “thousands of mortgage brokers who banked big bucks steering customers into subprime loans and the hundreds of mortgage traders and bankers at investment firms” who recklessly securitized the loans and sold them off to investors. Borrowers are typically portrayed as naïve victims of the mortgage bubble—save for a few actual fraudsters.
But what if the fraud was a lot more widespread than we’ve been lead to believe? According to a story in today’s Wall Street Journal—hidden from sight way back on page B 8—subprime speculation seems to have been fairly common.

Roughly 20% of mortgage fraud involved “occupancy fraud,” or borrowers falsely claiming they intended to live in a property, according to an analysis by BasePoint Analytics, a provider of fraud-detection solutions in Carlsbad, Calif. Another study, by Fitch Ratings, looked at 45 subprime loans that defaulted within the first 12 months even though the borrowers had good credit scores. In two-thirds of the cases, borrowers said they intended to live in the property but never moved in.
Some home builders have come to similar conclusions: They now believe that as many as one in four home buyers in some markets were investors during the boom, up from their earlier estimates of one in 10 buyers.

This of course does not bode well for the default rate. If default projectionss are built on faulty assumptions about owner occupancy, they will tend to underestimate the number of defaults. Non-resident speculators are far more likely to default than occupying owners, especially if the value of their home has fallen below the amount they owe on the mortgage. This looks like it is going to get worse before it gets better.
Speculators May Have Accelerated Housing Downturn [Wall Street Journal]

Al Qaeda Fucking Nails Genesis of Subprime

It’s not that often that I find myself in agreement with the Qaeda guys, so on the occasions I am, I like to make notice of it. American Al Qaeda leader Adam Gadahn, who recently made a “dramatic gesture” of tearing up his U.S. passport (pointing out that he doesn’t need it to travel “anyway”), said in a taped appearance that the subprime mortgage crisis was “triggered by right wing-fanatics trying to usher in the ends of days.”
I know what you are thinking, this is a rejection of the western capitalist system and a symbol of his return to a pure ideology not restrained by the dreadful inequalities of free markets (well, except in the case of those whores who try to walk around without veils), but DealBreaker readers know better: he’s just WAY short SPDRs.
American Al Qaeda Leader To Bush: ‘We Will Be Waiting For You’ [ABC News]

Protest On Wall Street.

Apparently there’s some kind of protest on near Goldman Sachs on Broad Street today. Gawker dot com, a media and celebrity gossip site, reports that twenty or so protesters are chanting and waiving signs outside of Goldman. Security, of course, was summoned and the protesters apparently took off to march up Wall Street.
The best part of all this, of course, is the cause: the protesters are protesting predatory lending. Of course, since Goldman doesn’t originate residential mortgages and made money last quarter shorting mortgages, it’s a bit odd to protest them for predatory lending. If anything, they engaged in predatory anti-lending. Details!
I Predict A Riot [Gawker]

Subprime Losses: A Blonde Moment On Wall Street?

NancyGarvey.jpgWhat do ousted Wall Street chiefs Stan O’Neal and Chuck Prince have in common? Put aside the obvious. What we want to talk about today is that both men are married to blonde women. (That’s Stan’s wife Nancy on the left.) And that may have dumbed them down, at least if you believe the researchers mentioned in a story in the Times of London earlier this week.
[The blonde condition after the jump.]

Read more »

Shorting Subprime: Already Over?

So Paulson & Co is getting out of the subprime trade? It seems like only yesterday that our little babies were almost in a panic about their short play, complaining to the SEC ththat banks were buying up bad loans in order to contain derivative losses. Remember the era when that might have sounded scandalous, rather than smart, heroic or obvious?
Well, whatever the plot to rescue subprime that Paulson thought it saw, it didn’t work out. They’ve doubled their assets this year, and now run $24 billion.
And now they have reportedly cut their subprime positions by 86%.
Paulson Funds Cut Bets Against Subprime Mortgages [Bloomberg]

blame.jpgUBS has fired David Martin, head of interest-rate trading, following the firm’s first quarterly loss since 1998 due to its major exposure to a few collapsed areas of the bond market. James Stehli, head of the collateralized debt obligation unit, was also told he would no longer be receiving health care. Having lots of practice at letting people go—last week investment bank chief exec Huw Jenkins and CFO Clive Standish were shoved out the door, just as president Peter Wuffli was earlier in the year—the layoffs are rumored to have gone quite smoothly. Security was not needed to be called, though Martin, allegedly, did yell, “You motherfuckers aren’t going to get away with this,” as he exited the building.
Subprime Snuffs UBS Execs [New York Post]

Bernanke Agrees

206-gob-banana_sm.jpgThe whole mortgage meltdown situation—don’t much get it, don’t much care. Per usual, we’re not really interested in delving a lot further than “Who’s to Blame?” but apparently, we can’t even do that right. Previously, we (in cahoots with Bear Stearns, who’s always in cahoots with someone) had sent singing telegrams dripping with vitriol and pipe bombs to the poor and Alan Greenspan. Over the weekend, we found out that represented a grave error in judgment on our part (conveniently, we—meaning me—were able to atone for our misguided sins against the country’s underprivileged/that crazy old guy. Carney, having no such get out of jail free card, will be going to hell).
As a guest on Rupert Murdoch’s “Forbes on Fox,” Richard Karlgaard, publisher of the magazine, was asked by host David Asman “what’s the deal” with home foreclosures, the economy, etc. His response, if you’re not Jerry Falwell taking part in this dialogue from the grave, may surprise you:

Well, what I think is that we’re seeing the first generation of home buyers who, in school, were taught to put condoms on bananas instead of learning about compound interest. This is not a good thing, but, ah, we have to work our way through it and the only way the market can clear, as Neal [Neal Weinberg, a senior editor at Forbes] said, is for the foreclosures to happen.

Other horrible events you can trace back to schools teaching kids to put condoms on bananas include but are certainly not limited to: 9/11, the theory of evolution and Global Alpha’s disastrous August (which actually hinted toward Sex Ed. being to blame in an earlier version of its letter to the investors).
Incidentally, if this was meant to be a preview for what we can expect from the Fox Business Network, color us excited. High school health classes have been getting a pass for TOO LONG.
The Publisher of Forbes Magazine, a Regular on Fox, Blames the Mortgage Meltdown on Sex Ed [News Hounds]