Finance company GMAC posted a $2.48 billion second-quarter loss on Thursday, hurt by a write-down of vehicle leases and mounting losses at its mortgage lending unit.
The loss compared with a profit of $293 million a year earlier. Results included a $1.86 billion loss at Residential Capital LLC, the mortgage unit’s seventh straight quarterly loss, and a $717 million loss in its auto finance business.
The Federal Reserve announced changes to its emergency lending window for financial institutions today. The changes extend the repayment period for the loans and the duration of the program among others. The lending window allows banks to borrow from the Fed for short periods of time while putting up securities (such as mortgage backed securities, etc.) as collateral for the loan. Banks have used this lending window to alleviate the strain on capital exacerbated by the credit crunch.
From Market Watch:
The Federal Reserve, continuing to combat the enormous stresses that have engulfed financial markets, announced Wednesday several steps designed to enhance its emergency lending program for banks and primary dealers.
For banks, the Fed said it would lengthen some of the credit it extends to 84 days. At the moment, the loans have been for 28 days.
For broker dealers that serve as primary dealers of Treasury debt, the Fed said it would introduce auctions of options on $50 billion of loans. The options could be exercised if needed in periods of elevated stress in months to come, such as the end of financial quarters.
The Fed also said it’s officially extending its primary-dealer loan program to the end of January from mid-September. This step had been previously telegraphed by Fed Chairman Ben Bernanke.
I’d be on the lookout for more of these types of suits in the future as real estate sales and their role in the bubble come more in to foucs. We’ve put a lot of time and energy in on the mortgage side of the game; but there is plenty of blame/shame to heap on Realtors who pushed borrowers, sellers and loan originators in to uncomfortable situations.
Obviously, this is not the only place this occured. That the Department of Justice felt they had enough evidence to press charges is a testament to how excessive this practice at RE/Max East-West truly was. If the alleged crooked lending practices by Countrywide cannot be proven to be discriminatory, but these can you get a sense of how bad it must have been.
From the press release:
On July 18, 2008, the U.S. Department of Justice filed a federal lawsuit against the real estate brokerage doing business as Re/Max East-West alleging discrimination on the basis of race and national origin in violation of the Fair Housing Act. Re/Max East-West is a major brokerage company serving Illinois’ DuPage and Cook Counties, including the neighborhoods of Elmhurst, Lombard, Villa Park and Bensenville.
After NFHA filed a HUD complaint in 2005, HUD initiated an investigation based on NFHA’s findings and issued a charge of discrimination on June 9, 2008. The Justice Department then brought suit again Re/Max and John DeJohn in United States v. S & S GROUP, LTD. d/b/a REMAX EAST-WEST, through its successor in interest, S&W ELMHURST, LLC, also d/b/a REMAX EAST-WEST and JOHN DEJOHN (Case no. 08-CV-4099). This investigation was part of NFHA’s multi-year, multi-city enforcement project to test for housing discrimination in real estate companies identified by HUD as having previously discriminated during its Housing Discrimination Study.
NFHA’s 12 city investigation found an 87% rate of racial steering and an almost 20% rate of denial for African-Americans and Latinos. The Fair Housing Act prohibits housing discrimination on the basis of race, color, national origin, religion, sex, familial status and disability.
If this graph (from the Big Picture) doesn’t say it all keep reading…
The home prices tracked by the S&P Case-Shiller index continue to drop with all 20 cities tracked in the study posting losses for May (the most recent month tracked).
Data through May 2008, released today by Standard & Poor’s for its S&P/Case-Shiller(1) Home Price Indices, the leading measure of U.S. home prices, show annual declines in the prices of
existing single family homes across the United States generally continued to worsen in May 2008. For the second straight month, all 20 MSAs posted annual declines, nine of which are posting record lows and 10 of which are in double-digits. Both the 10-City Composite and the 20-City Composite are reporting record low annual declines.
Prices thus are at the same levels as they were in the summer of 2004, which means four years of appreciation have been effectively wiped out. Prices are down 18.4% from peak levels seen two years ago.
Home prices surged in 2003 through 2006, climbing by a cumulative 52%, according to Case-Shiller. Since then, however, homeowners have given up half of the gains from earlier in the decade as the housing and credit bubbles burst.
This is where it gets really unfortunate folks. Taxpayers bear the burden of a Fannie and Freddie bail out while the companies can still pay out dividends, bear the burden of a Bear Stearns bail out, bail out irresponsible policy and practice and then be shut out of opportunity. Can you imagine explaining to the parents of those kids that your child won’t get an opportunity at college because of the mortgage mess and their taxes will go towards bailing out those very same people who took away that opportunity?
I think I am officially disgusted.
From the New York Times:
The self-financing state authority, known as MEFA, was unable to secure financing for the 40,000 students it services, said Tom Graf, the authority’s executive director, in a statement. The authority offers fixed-rate loans to students who live in Massachusetts or attend school there.
Mr. Graf said disruptions in the capital markets were why the financing authority could not obtain money.
“While we continue to pursue every possible option, raising the necessary funds to offer fixed-interest rate private education loans is taking longer than originally projected and has become even more challenging,” Mr. Graf said in the statement. “As soon MEFA has secured funding, we will make education loans available. At this time, however, it remains unclear when MEFA will be able to resume its lending activities.”
In April, the financing authority announced it would be unable to offer federal education loans because of the credit markets. In late June it said it would be able to offer private fixed-rate loans, but it now says that is no longer feasible.
“It’s really the capital markets. It’s a global situation,” said Jessica Belt, a MEFA spokeswoman. “We’re looking at other options. It’s uncharted territory for everyone, not just MEFA.”
Interesting piece in the New York Times about the downfall of IndyMac Bank and the history that led to its demise. The title, The Downfall of a California Dreamer, paves the way for this look back; but unfortunately it’s romanticized version of events led by a chairman with a dream comes up much too short in it’s analysis of the greed and malfeasance that led to the bank’s demise.
Let’s get the facts straight. IndyMac died for two main reasons: bad loans and greed. There is nothing romantic about that, there is no awe or spectacle in greed. There is no reverence to be found in corporate glutony.
Michael Perry and IndyMac perished because they didn’t follow sound underwriting and risk management policies and it saddled them with a bunch of bad loans. The Senator Schumer run was only the icing on the cake. IndyMac’s fate was sealed well before that.
IndyMac had long been known as an asylum that was run by the inmates. There are classic stories of sales managers bullying underwriters, of exceptions being made at the end of the month and all manner of bad business going down in the never-ending chase for more revenue. These of course are unsubstantiated and heresey, but when you hear them enough…
I remember talking to friends who used to send all of their loans to IndyMac. They would get max value on a “pushed” appraisal, an exception on a credit score under 620 and a maximum rebate on their pay option ARM loans that yielded them tens of thousands of dollars per transaction.
These are what did in IndyMac in - not a letter from a Senator.
From the New York Times:
Mr. Perry, whom friends and co-workers described as a hands-on manager who sometimes personally weighed in on mortgage applications, pushed the boundaries of his trade. But apparently not even Mr. Perry, who spent much of his career at IndyMac and its predecessor companies, saw the trouble until it was too late. He was predicting as recently as February that the bank would not only weather the downturn in the housing market but that it would even turn a profit this year.
Through a spokesman, Mr. Perry declined to comment for this article on the advice of his lawyers.
Formed in 1985 as a small division of Countrywide, IndyMac started making loans in the 1990s and became fully independent in 1997. The company nearly went under when the credit markets seized up in 1998, but Mr. Perry steered the company through that crisis by reducing its reliance on Wall Street financing. In July 2000, he acquired a savings bank to gain access to what was widely presumed to be a more stable source of financing: customers’ deposits.
“He certainly never forgot that experience,” Thomas K. Brown, chief executive of Second Curve Capital, said of IndyMac’s troubles in 1998. Mr. Brown, whose hedge fund had owned 5 percent of IndyMac late last year, described Mr. Perry as an “eternal optimist.”
Mr. Brown said Mr. Perry often referred to IndyMac’s previous hardships by saying, “We have made tough decisions in the past.”
Most of this decade was a golden era for IndyMac, whose profits grew threefold from 2001 to 2006. The company specialized in alternative-A, or alt-A, mortgages, which are made to borrowers with good credit but are not quite as conservative as the prime loans eligible to be bought by Fannie Mae and Freddie Mac, the mortgage giants.
For a long time, Mr. Perry disputed the growing belief that the problems in subprime mortgages would infect alt-A loans.
What do you think? Share your IndyMac stories in the comments.
If you’re scoring at home Merrill has taken $18.7 billion in losses over the last 4 quarters. POW!
From Market Watch:
Merrill Lynch & Co. said late Monday that it plans to raise $8.5 billion selling new common stock as the brokerage firm tries to bolster its capital position. Singapore’s Temasek Holdings has agreed to buy $3.4 billion of the new shares, Merrill added. The firm also said it sold a big chunk of its U.S. super senior asset-backed security collateralized debt obligations, cutting its exposure in this area by $11.1 billion compared to the end of June.
From Bloomberg:
Merrill Lynch & Co. said it will record $5.7 billion of pretax writedowns in the third quarter because of additional losses on the sale of collateralized debt obligations and hedging contracts with bond-insurers including XL Capital Assurance.
My posting last week was relatively light due to a hectic business travel schedule Monday-Wednesday and then the Inman Real Estate Connect Conference in San Francisco. It was great to be participating in the conference, but the big highlight for me was meeting CR of Calculated Risk and Merlin Mann both in person. Connect had a great setup with an opportunity called “Meet the Leaders” where you could come up and talk to the keynote panelists. I wasn’t missing out on meeting either of those two gentlemen and I’m glad I did.
If you haven’t you should check out Calculated Risk (it’s a must read for the mortgage/economy) and Merlin Mann (his site is a must read for productivity).
In addition to those two folks I met a ton of real estate bloggers (too many to name here) but it was great to meet all those folks and talk instead of blog and comment at each other!
A great quote in the New York Times by way of Naked Capitalism from one of my favorite authors, pundits, quants Nassim Taleb about those trying to make predictions in the current market:
“I cannot find a single convincing argument that tells me that astrologers won’t do better than economists,” Mr. [Nassim Nicholas] Taleb said last week by telephone from Lebanon, where he was mountain hiking.
“The problem is the arrogance of these economists,” he said. “They’re making people rely on theories that have not worked, do not work, and are really dangerous.”
Got a tip about a guideline change, bank or hedge fund shutdown or downsize? Have details about shady dealings at your local mortgage shop? Send them to the tip line. 100% Private.
Morgan Brown writes Blown Mortgage tracking the latest news on the mortgage mess. The goal - to keep you informed so you don't get a blown mortgage.
