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Alan Greenspan, the former Fed reserve chief who many blame for the housing meltdown told audiences in Asia that he saw the bottom of the housing downturn as hitting sometime in early 2009 proving once again you can take the bull out of monetary policy but not out of the man. Greenspan’s remarks come as market sentiment seems to be improving over the dour mood the of the past few months.
According to Research Recap Fitch reported that they anticipate 80% of all subprime-related writedowns have been booked by the banks and institutions holding subprime-backed assets.
From Research Recap on Fitch’s analysis of subprime writedowns:
Further subrime-related ratings bank downgrades are likely to be minimal as global banks have already written down more than 80% of their losses from subprime mortgage assets, Fitch Ratings says in a Special Report.
Fitch estimates total market losses from subprime mortgage assets at $400 billion, though estimates may be as high as $550 billion, depending on the method of calculation used.
In addition Freddie Mac posted a less-than-expected loss for the quarter on the back of the credit mess, suggesting to some that the GSE’s revenue will be adequate to help power through losses related to the housing mess.
From Market Watch on Freddie Mac’s quarterly results:
Freddie Mac said it lost $151 million, or 66 cents a share, in the first quarter, compared to a loss of $133 million, or 46 cents a share, in the year-ago period. The company said difficult housing- and credit-market conditions were behind a $1.2 billion provision for credit losses taken in the latest quarter.However, analysts surveyed by FactSet Research had, on average, predicted that Freddie Mac would lose 91 cents a share for the first three months of 2008.
However, the upbeat sentiment belies some difficult truths that still face the market in the coming months and years. In the same article on the Freddie Mac quarter several disquieting facts were disclosed including the reduction in the capital cushion maintained by the mortgage giant and its admission that the “worst had yet to come” in terms of credit costs charged against it’s existing portfolio.
When that money is raised, Freddie Mac’s federal regulator said it will lower the excess-capital cushion on the company to 15% from 20%, with another cut to 10% after the company completes other steps including completion of registration with the Securities and Exchange Commission.“This does not mean we have seen the worst in credit costs, but it does mean that revenue growth will be significantly stronger than the growth in credit costs,” he wrote to clients.Richard Syron, Freddie Mac’s chief executive, warned investors that the company probably faces more tough times ahead as the housing market remains weak.“While our expectation is for continued weakness in the housing and economic environment to negatively impact our overall performance through the remainder of this year, we have put Freddie Mac on a better foundation to manage through the current cycle and emerge a successful, long-term competitor,” Syron said in a statement Wednesday.Moody’s Investors Service, meanwhile, downgraded Freddie Mac’s financial strength rating but affirmed the company’s Aaa senior and all other debt ratings.
